Your SlideShare is downloading. ×
2011 PPG Industries Annual Report and Form 10K
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Saving this for later?

Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime - even offline.

Text the download link to your phone

Standard text messaging rates apply

2011 PPG Industries Annual Report and Form 10K

1,112
views

Published on

2011 PPG Industries Annual Report and Form 10K

2011 PPG Industries Annual Report and Form 10K

Published in: Economy & Finance, Business

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,112
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
18
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. 2011PPG Annual Reportand Form 10-K
  • 2. Company Profile PPG Industries’ vision is to continue to be the world’s leading coatings and specialty products company. Through leadership in innovation, sustainability and color, PPG helps customers in industrial, transportation, consumer products, and construction markets and aftermarkets to enhance more surfaces in more ways than does any other company. Founded in 1883, PPG has global headquarters in Pittsburgh and operates in more than 60 countries around the world. Sales in 2011 were $14.9 billion. PERFORMANCE COATINGS n OPTICAL AND SPECIALTY MATERIALS n n AEROSPACE. Leading manufacturer of transparencies, n OPTICAL PRODUCTS. Produces optical monomers electrochromic cabin window shades, sealants and coatings, and coatings, including CR-39®, Trivex® and Tribrid™ lens and provider of surface solutions, packaging, and chemical materials, high performance NXT® sunlenses, optical sheet management services, delivering new technologies and transparencies, photochromic dyes and Transitions® solutions to airframe manufacturers, airlines and maintenance photochromic eyeglass lenses. providers for the commercial, military and general aviation industries globally. Also supplies transparent armor for n SILICAS. Produces amorphous precipitated silicas for tire, military vehicles. battery separator and other end-use applications and Teslin® substrate used in applications such as radio frequency n ARCHITECTURAL COATINGS — AMERICAS AND identification (RFID) tags and labels, e-passports, driver’s ASIA PACIFIC. Produces paints, stains and specialty coatings licenses and identification cards. for the commercial, maintenance and residential markets under brands such as PPG Pittsburgh Paints®, PPG Porter COMMODITY CHEMICALS n Paints®, PPG, Master’s Mark®, Renner®, Lucite®, Olympic®, n CHLOR-ALKALI AND DERIVATIVES. Produces chlorine, Taubmans® and Ivy®. caustic soda and related chemicals for use in chemical n AUTOMOTIVE REFINISH. Produces and markets a full manufacturing, pulp and paper production, water line of coatings products and related services for automotive treatment, plastics production, agricultural products, and commercial transport/fleet repair and refurbishing, light pharmaceuticals and many other applications. industrial coatings and specialty coatings for signs. GLASS n n PROTECTIVE AND MARINE COATINGS. Leading supplier of corrosion-resistant, appearance-enhancing coatings for n FIBER GLASS. Manufactures fiber glass reinforcement the marine, infrastructure, petrochemical, offshore and power materials for thermoset and thermoplastic composite industries. Produces the Amercoat®, Freitag®, PPG High applications, serving the transportation, energy, Performance Coatings and Sigma Coatings® brands. infrastructure and consumer markets. Produces fiber glass yarns for electronic printed circuit boards and specialty applications. INDUSTRIAL COATINGS n n FLAT GLASS. Produces flat glass and coated glass that n AUTOMOTIVE OEM COATINGS. Leading supplier of is fabricated into products primarily for commercial coatings, specialty products and services to automotive, construction and residential markets, as well as the solar commercial vehicle, fascia and trim manufacturers. Products energy, appliance, mirror and transportation industries. include electrocoats, primer surfacers, basecoats, clearcoats, liquid applied sound dampeners, bedliner, pretreatment chemicals, adhesives and sealants. Glass n INDUSTRIAL COATINGS. Produces coatings for appliances, (7%) agricultural and construction equipment, consumer Commodity products, electronics, automotive parts, residential and Chemicals commercial construction, wood flooring, joinery (windows and (12%) doors) and other finished products. Performance Coatings n PACKAGING COATINGS. Global supplier of coatings, inks, Optical & (31%) Specialty Materials compounds, pretreatment chemicals and lubricants for metal (8%) and plastic containers for the beverage, food, general line and specialty packaging industries. Architectural Coatings - EMEA ARCHITECTURAL COATINGS – EMEA n (14%) Industrial2011 PPG INDUSTRIES ANNUAL REPORT n ARCHITECTURAL COATINGS — EMEA (Europe, Middle Coatings East and Africa). Supplier of market-leading paint brands (28%) for the trade and retail markets such as Sigma Coatings®, Histor®, Brander®, Dyrup®, Bondex®, Balakryl®, Boonstoppel®, Rambo®, Seigneurie®, Penitures Gauthier®, Guittet®, Ripolin®, Johnstone’s®, Leyland®, Dekoral®, Trinat®, Hera®, Primalex®, 2011 Segment Net Sales Prominent Paints® and Freitag®. Contents 2011 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Financial and Operating Review . . . . . . . . . . . . . . . . . 32 Letter From the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . 2 Five-Year Digest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Management’s Discussion and Analysis. . . . . . . . . . . 17 PPG Shareholder Information. . . . . . . . . . . . . . . . . . . . 87
  • 3. 2011 Financial HighlightsAverage shares outstanding and all dollar amounts except per share data are in millions. Net Sales Net Income Earnings per Share Dividends per Share 20,000 1,200 8 2.5 12,220 15,849 12,239 13,423 14,885 834 538 336 769 1,095 5.03 3.25 2.03 4.63 6.87 2.04 2.09 2.13 2.18 2.26 7 1,000 2.0 15,000 6 800 5 1.5 10,000 600 4 3 1.0 400 5,000 2 0.5 200 1 0 0 0 0.0 FOR THE YEAR 2011 CHANGE 2010 Board of Operating Net Sales Net Income* $ 14,885 $ 1,095 11 % 42 % $ 13,423 $ 769 Directors Committee Earnings per Share* ‡ $ 6.87 48 % $ 4.63 Charles E. Bunch Charles E. Bunch* Chairman and Chief Executive Officer, Chairman and Chief Executive Officer Dividends per Share $ 2.26 4 % $ 2.18 PPG Industries, Inc. J. Rich Alexander* Return on Average Capital 16.6 % 29 % 12.9 % Stephen F. Angel Executive Vice President Chairman, President and Chief Operating Cash Flow $ 1,436 10 % $ 1,310 Executive Officer, Praxair, Inc. Pierre-Marie De Leener* Nominating and Governance Committee; Executive Vice President Capital Spending $ 446 31 % $ 341 Technology and Environment Committee Glenn E. Bost II* James G. Berges Sr. Vice President and General Counsel Research and Development $ 445 9 % $ 408 Partner, Clayton, Dubilier & Rice, LLC, and retired President, Emerson Electric Co. David B. Navikas* Average Shares Outstanding ‡ 159.3 -4 % 165.9 Audit Committee; Nominating and Sr. Vice President, Finance, Governance Committee and Chief Financial Officer Average Number of Employees 38,400 — % 38,300 Hugh Grant Richard C. Elias Chairman, President and Chief Executive Sr. Vice President, AT YEAR END 2011 CHANGE 2010 Officer, Monsanto Company Optical and Specialty Materials Nominating and Governance Committee; PPG Shareholders’ Equity $ 3,249 -11 % $ 3,638 Officers-Directors Compensation Committee Michael H. McGarry Sr. Vice President, Commodity Chemicals Victoria F. Haynes * Includes in 2010 an aftertax charge of $85 million, or 51 cents per share, representing a reduction in a deferred tax President and Chief Executive Officer, Cynthia A. Niekamp asset due to tax law changes included in health care legislation enacted in March 2010 that included a provision to RTI International Sr. Vice President, Automotive OEM Coatings Audit Committee; Technology reduce the amount of retiree medical costs that will be deductible after Dec. 31, 2012. and Environment Committee Viktoras R. Sekmakas ‡Assumes dilution. Michele J. Hooper Sr. Vice President, Industrial Coatings, and President, PPG Europe President and Chief Executive Officer, The Directors’ Council Aziz Giga Audit Committee; Nominating Vice President and Treasurer and Governance Committee Anup Jain Robert Mehrabian Vice President, Strategic Planning Chairman, President and Chief Executive and Corporate Development Officer, Teledyne Technologies Incorporated Officers-Directors Compensation Committee; J. Craig Jordan Technology and Environment Committee Vice President, Human Resources Martin H. Richenhagen Charles F. Kahle II Chairman, President and Chief Executive Chief Technology Officer and Vice President, Officer, AGCO Corporation Research and Development, Coatings Audit Committee; Technology and Environment Committee 2011 PPG INDUSTRIES ANNUAL REPORT Robert Ripp *Member of the Executive Committee Chairman, Lightpath Technologies, Inc., and former Chairman and Chief Executive Officer, AMP Inc. Audit Committee; Officers-Directors Compensation Committee Thomas J. Usher Non-executive Chairman of the Board, Marathon Petroleum Corporation Officers-Directors Compensation Committee; Technology and Environment Committee David R. Whitwam Retired Chairman and Chief Executive Officer, Whirlpool Corporation Nominating and Governance Committee; This sheet is printed on Teslin® SP1000 Blue. Officers-Directors Compensation Committee 1
  • 4. Letter from the Chairman I n 2011, PPG delivered record full-year earnings per share of $6.87. This represents an increase of 48 percent over 2010 and easily establishes a new record for the company. coatings manufacturing facility in Tianjin, China. We also announced four acquisitions: Equa-Chlor, a chlor-alkali producer in the western United States; Dyrup, a European Net income also was a record at $1.1 billion, an increase of architectural coatings and wood care business; Ducol, a 42 percent over last year. Earnings per share in each quarter South African automotive refinish company; and Colpisa, a of the year eclipsed prior quarter records by an average of Colombian automotive coatings producer. about 20 percent. And sales for the year were $14.9 billion, PPG maintained its long tradition of rewarding an increase of 11 percent over 2010. shareholders in 2011 by returning $1.2 billion, or about 85 This strong performance was achieved despite global percent of the cash we generated from operations, in the growth rates that were uneven by region and varied by form of dividends and share repurchases. We are proud to industry. More importantly, these results demonstrate that have paid uninterrupted annual dividends since 1899, and our mission to continue to be the world’s leading coatings 2011 marked the 40th consecutive year that we increased and specialty products company, supported by our strategic our annual dividend payout. Additionally, the 10.2 million initiatives to pursue profitable growth and drive operational shares of PPG stock we repurchased for about $850 million excellence, is clearly yielding results. marked the highest annual level in the company’s history. Our actions to extend PPG’s geographic footprint and Notwithstanding this amplified level of cash deployment, broaden end-use market exposure contributed greatly we still ended the year with about $1.5 billion of cash and to our performance in 2011. We delivered double-digit short-term investments that will provide us with the strength percentage sales increases in each major global region. and flexibility to fund growth initiatives in 2012. PPG also posted higher earnings in each region on the In addition to our record financial performance, 2011 was strength of improved results in each of the company’s six an excellent year for PPG by nearly every other measure. reporting segments, including excellent performance in our True to our “Blueprint” values, we made significant progress businesses serving the aerospace, automotive and general on many of our ethics; environment, health and safety; and industrial market segments. community engagement programs. In 2011, we revised our During the year, PPG made progress toward many Global Code of Ethics to make it even stronger. For the of our strategic initiatives. As a result, PPG’s segment second consecutive year, we reduced our spill and release margins improved to 13.6 percent, up from 12.8 percent rate and maintained our low level of injuries and illnesses in 2010, and we maintained our margin leadership in the across the corporation. And, we expanded our community coatings industry. Each of our 13 business units delivered and social responsibility initiatives on a global scale. You can higher pricing, and we gained market share in several end- read more about this work in our Corporate Sustainability use markets by leveraging our leading technologies and Report Update, which will be published this April. customer service. This enabled us to counter the impact of Looking ahead, we anticipate a mixed economic persistent inflation in raw materials costs. We also reduced backdrop in 2012. We expect moderate strengthening our manufacturing costs during the year beyond the already in the U.S. economy supported by an enhanced global low cost structure we achieved by implementing our 2008 cost position in the industrial sector due to lower regional and 2009 restructuring programs. natural gas prices. The European region will likely remain We continued to strengthen our business both organically very challenging. In the aggregate, growth in the emerging and through acquisitions. Among other projects, we regions is expected to remain high compared to developed completed construction of a new resin manufacturing facility regions but more moderate and erratic than it has been in in Zhangjiagang, China, and expanded our waterborne the past. As we deal with these uncertainties, we intend to manage our businesses in the same proactive and disciplined manner we always have. We will continue to emphasize our principles of operational excellence and our legacy of ensuring that our cost structure is appropriate for end-market demand levels. We plan to implement price increases in many of our businesses to offset the cost inflation we have already absorbed in 2011. Finally, we aim to continue to prudently deploy our strong cash position toward earnings accretion and rewarding shareholders, and we are targeting to end 2012 with a cash balance of less than $1 billion. Like most years, 2012 will present unanticipated challenges. However, given our strong performance over2011 PPG INDUSTRIES ANNUAL REPORT the past several years, I’m confident that our strategy and execution remain sound and will enable us not only to overcome these obstacles but to continue to create value for our shareholders. Charles E. Bunch Chairman and Chief Executive Officer 2
  • 5. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2011 Commission File Number 1-1687 PPG INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-0730780 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One PPG Place, Pittsburgh, Pennsylvania 15272 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: 412-434-3131 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock – Par Value $1.66 2⁄ 3 New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the SecuritiesAct. YES È NO ‘Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct. YES ‘ NO ÈIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirementsfor the past 90 days. YES È NO ‘Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate web site, if any,every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and postsuch files). YES È NO ‘Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer È Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ (Do not check if a smaller reporting company)Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of theAct). YES ‘ NO ÈThe aggregate market value of common stock held by non-affiliates as of June 30, 2011, was $14,069 million.As of January 31, 2012, 152,007,747 shares of the Registrant’s common stock, with a par value of $1.66 2⁄ 3 per share,were outstanding. As of that date, the aggregate market value of common stock held by non-affiliates was $13,580million. DOCUMENTS INCORPORATED BY REFERENCE Incorporated By Document Reference In Part No.Portions of PPG Industries, Inc. Proxy Statement for its 2012 Annual Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III 2011 PPG ANNUAL REPORT AND FORM 10-K 3
  • 6. PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES As used in this report, the terms “PPG,” “Company,” “Registrant,” “we,” “us” and “our” refer to PPG Industries, Inc., and its subsidiaries, taken as a whole, unless the context indicates otherwise. TABLE OF CONTENTS Page Part I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Part II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . 74 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Part III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . 75 Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Part IV Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Note on Incorporation by Reference Throughout this report, various information and data are incorporated by reference from the Company’s 2011 Annual Report (hereinafter referred to as “the Annual Report”). Any reference in this report to disclosures in the Annual Report shall constitute incorporation by reference only of that specific information and data into this Form 10-K.4 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 7. Part I The aerospace coatings business supplies sealants,Item 1. Business coatings, technical cleaners and transparencies for commercial, military, regional jet and general aviation PPG Industries, Inc., incorporated in Pennsylvania in aircraft and transparent armor for military land vehicles.1883, is comprised of six reportable business segments: PPG supplies products to aircraft manufacturers andPerformance Coatings, Industrial Coatings, Architectural maintenance and aftermarket customers around the worldCoatings – EMEA (Europe, Middle East and Africa), both on a direct basis and through a company-ownedOptical and Specialty Materials, Commodity Chemicals distribution network.and Glass. Each of the business segments in which PPG isengaged is highly competitive. The diversification of The protective and marine coatings business suppliesproduct lines and worldwide markets served tend to coatings and finishes for the protection of metals andminimize the impact on PPG’s total sales and earnings structures to metal fabricators, heavy duty maintenancefrom changes in demand for a particular product line or contractors and manufacturers of ships, bridges, rail carsin a particular geographic area. Refer to Note 24, and shipping containers. These products are sold through“Reportable Business Segment Information” under Item 8 the company-owned architectural coatings stores,of this Form 10-K for financial information relating to our independent distributors and directly to customers.reportable business segments. Product performance, technology, quality,Performance Coatings, Industrial Coatings and distribution and technical and customer service are majorArchitectural Coatings – EMEA competitive factors in these three coatings businesses. PPG is a major global supplier of protective and The architectural coatings-Americas and Asia Pacificdecorative coatings. The Performance Coatings, Industrial business primarily produces coatings used by paintingCoatings and Architectural Coatings – EMEA reportable and maintenance contractors and by consumers forsegments supply protective and decorative finishes for decoration and maintenance of residential andcustomers in a wide array of end use markets, including commercial building structures. These coatings are soldindustrial equipment, appliances and packaging; factory- under a number of brands. Architectural coatings –finished aluminum extrusions and steel and aluminum Americas and Asia Pacific products are sold through acoils; marine and aircraft equipment; automotive original combination of company-owned stores, home centers,equipment; and other industrial and consumer products. paint dealers, and independent distributors and directly toIn addition to supplying finishes to the automotive customers. Price, product performance, quality,original equipment market (“OEM”), PPG supplies distribution and brand recognition are key competitiverefinishes to the automotive aftermarket. PPG also serves factors for these architectural coatings businesses. Thecommercial and residential new build and maintenance architectural coatings-Americas and Asia Pacific businessmarkets by supplying coatings to painting and operates about 400 company-owned stores in Northmaintenance contractors and directly to consumers for America and about 40 company-owned stores indecoration and maintenance. The coatings industry is Australia.highly competitive and consists of a few large firms with The major global competitors of the Performanceglobal presence and many smaller firms serving local or Coatings reportable segment are Akzo Nobel N.V., BASFregional markets. PPG competes in its primary markets Corporation, E.I. duPont de Nemours and Company,with the world’s largest coatings companies, most of Hempel A/S, the Jotun Group, Masco Corporation, thewhich have global operations, and many smaller regional Sherwin-Williams Company, Valspar Corporation andcoatings companies. Product development, innovation, GKN plc. The average number of persons employed bycost effectiveness, distribution, quality and technical and the Performance Coatings reportable segment duringcustomer service have been stressed by PPG and have 2011 was about 12,100.been significant factors in developing an important The Industrial Coatings reportable segment issupplier position by PPG’s coatings businesses comprising comprised of the automotive OEM, industrial andthe Performance Coatings, Industrial Coatings and packaging coatings businesses. Industrial, automotiveArchitectural Coatings – EMEA reportable segments. OEM and packaging coatings are formulated specifically The Performance Coatings reportable segment is for the customers’ needs and application methods.comprised of the refinish, aerospace, protective and The industrial and automotive OEM coatingsmarine and architectural – Americas and Asia Pacific businesses sell directly to a variety of manufacturingcoatings businesses. companies. PPG also supplies adhesives and sealants for The refinish coatings business supplies coatings the automotive industry and metal pretreatments andproducts for automotive and commercial transport/fleet related chemicals for industrial and automotiverepair and refurbishing, light industrial coatings for a applications. PPG has established alliances with Kansaiwide array of markets and specialty coatings for signs. Paint, Helios Group and Asian Paints Ltd. to serve certainThese products are sold primarily through independent automotive original equipment manufacturers in variousdistributors. regions of the world. PPG owns a 60% interest in PPG 2011 PPG ANNUAL REPORT AND FORM 10-K 5
  • 8. Kansai Finishes to serve Japanese-based automotive OEM e-passports, drivers’ licenses and identification cards. customers in North America and Europe. PPG owns a Transitions® lenses are processed and distributed by PPG’s 60% interest in PPG Helios Ltd. to serve Russian-based 51%-owned joint venture with Essilor International. In automotive OEM customers in Russia and the Ukraine. the Optical and Specialty Materials businesses, product PPG and Asian Paints currently each own a 50% interest quality and performance, branding, distribution and in Asian PPG Paints to serve global and domestic-based technical service are the most critical competitive factors. automotive OEM customers in India. In 2011, PPG The major global competitors of the Optical and Specialty announced that it plans to expand the current Asian Materials reportable segment are Vision-Ease Lens, Carl Paints joint venture to also create a second 50-50 joint Zeiss AG, Corning, Inc., Hoya Corporation, Mitsui venture with Asian Paints. The current joint venture will Chemicals, Inc., Rhodia, S.A., J.M. Huber and Evonik expand its scope to serve India’s industrial liquid, marine Industries, A.G. The average number of persons employed and consumer packaging coatings markets. The new by the Optical and Specialty Materials reportable business venture will serve the protective, industrial powder, segment during 2011 was about 2,800. industrial containers and light industrial coatings Commodity Chemicals markets. These transactions are subject to Indian regulatory approvals and are expected to be completed PPG is a producer and supplier of basic chemicals. The during 2012. PPG and Asian Paints have agreed that PPG Commodity Chemicals reportable segment produces chlor- will control the existing expanded joint venture and Asian alkali and derivative products, including chlorine, caustic Paints will control the new joint venture. soda, vinyl chloride monomer, chlorinated solvents, calcium The packaging coatings business supplies coatings hypochlorite, ethylene dichloride, hydrochloric acid and and inks to the manufacturers of aerosol, food and phosgene derivatives. Most of these products are sold beverage containers. directly to manufacturing companies in the chemical processing, plastics, including polyvinyl chloride (“PVC”), Product performance, technology, cost effectiveness, paper, minerals, metals and water treatment industries. PPG quality and technical and customer service are major competes with seven other major producers of chlor-alkali competitive factors in the industrial coatings businesses. products, including The Dow Chemical Company, Formosa The major global competitors of the Industrial Coatings Plastics Corporation, U.S.A., Georgia Gulf Corporation, reportable segment are Akzo Nobel N.V., BASF Occidental Chemical Corporation, Olin Corporation, Corporation, the E.I. duPont de Nemours and Company, Shintech, Inc and Westlake Chemical Corporation. Price, Valspar Corporation and Nippon Paint. The average product availability, product quality and customer service number of persons employed by the Industrial Coatings are the key competitive factors. The average number of reportable segment during 2011 was about 8,000. persons employed by the Commodity Chemicals reportable The Architectural Coatings – EMEA business supplies a business segment during 2011 was about 2,000. variety of coatings under a number of brands and purchased Glass sundries to painting contractors and consumers in Europe, the Middle East and Africa. Architectural Coatings – EMEA The Glass reportable business segment is comprised products are sold through a combination of about 650 of the flat glass and fiber glass businesses. PPG is a company-owned stores, home centers, paint dealers, and producer of flat glass in North America and a global independent distributors and directly to customers. Price, producer of continuous-strand fiber glass. PPG’s major product performance, quality, distribution and brand markets are commercial and residential construction and recognition are key competitive factors for this business. The the wind energy, energy infrastructure, transportation and major competitors of the Architectural Coatings – EMEA electronics industries. Most glass products are sold reportable segment are Akzo Nobel N.V. and Materis Paints. directly to manufacturing companies. PPG manufactures The average number of persons employed by the flat glass by the float process and fiber glass by the Architectural Coatings – EMEA reportable segment during continuous-strand process. 2011 was about 7,900. The bases for competition in the Glass businesses are Optical and Specialty Materials price, quality, technology and customer service. The Company competes with four major producers of flat PPG’s Optical and Specialty Materials reportable glass, including Asahi Glass Company, Cardinal Glass segment is comprised of the optical products and silicas Industries, Guardian Industries and NSG Pilkington, and businesses. The primary Optical and Specialty Materials eight major producers of fiber glass throughout the world, products are Transitions® lenses, optical lens materials including Owens Corning-Vetrotex, Jushi Group, Johns and high performance sunlenses; amorphous precipitated Manville Corporation, CPIC Fiberglass, AGY, NEG, 3B silicas for tire, battery separator and other end-use and Taishan Fiberglass. The average number of persons markets; and Teslin® substrate used in such applications employed by the Glass reportable business segment as radio frequency identification (RFID) tags and labels, during 2011 was about 3,200.6 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 9. Raw Materials and Energy These initiatives include reformulation of our products using both petroleum-derived and bio-based materials as The effective management of raw materials and part of a product renewal strategy, qualifying multiple andenergy is important to PPG’s continued success. The local sources of supply, including suppliers from Asia andCompany’s most significant raw materials are epoxy and other lower cost regions of the world. The Company alsoother resins, titanium dioxide and other pigments, and has undertaken a strategic initiative with multiple globalsolvents in the Coatings businesses; lenses, sand and soda suppliers to secure and enhance PPG’s supply of titaniumash in the Optical and Specialty Materials segment; brine dioxide, as well as to add to the global supply of this rawand ethylene in the Commodity Chemicals segment; and material. PPG possesses intellectual property andsand, clay and soda ash in the Glass segment. Many raw expertise in the production and finishing of titaniummaterial prices began to inflate during 2010, which dioxide pigment and we intend to leverage this andcontinued through the majority of 2011, reflecting engage potential partners to develop innovative supplyrecovering economic demand and decreased supply solutions through technical collaborations, joint ventures,stemming from capacity idled or closed during the licensing or other commercial initiatives.recession. Also, adverse effects of supplier disruptions due We are subject to existing and evolving standardsto natural disasters placed additional pressure on some of relating to the registration of chemicals that impact or couldour supply chains leading to higher prices. potentially impact the availability and viability of some of the Coatings raw materials include both organic, raw materials we use in our production processes. Ourprimarily petroleum based, and inorganic materials and ongoing global product stewardship efforts are directed atgenerally comprise 70-to-80 percent of cost of goods sold maintaining our compliance with these standards.in most coatings formulations and represent PPG’s single In December 2006, the European Union (“EU”)largest production cost component. In 2011, overall member states adopted new comprehensive chemicalcoatings raw materials costs inflated by approximately management legislation known as “REACH”10-to-12 percent for the Company. The largest inflation (Registration, Evaluation, and Authorization ofimpacts were from titanium dioxide pigments and certain Chemicals). REACH applies to all chemical substancespropylene-based resins. During 2011, the incremental manufactured or imported into the EU in quantities ofcost of coatings raw materials due to inflation was one metric ton or more annually and will require theapproximately $440 million. This compares to inflation of registration of approximately 30,000 chemical substancesapproximately $210 million in 2010 and a benefit of with the European Chemicals Agency. PPG met the$150 million in 2009 reflecting a drop in overall requirements for pre-registration of such chemicals thatcommodity prices due to the recession. ended on December 1, 2008. Additionally, REACH Energy is a significant production cost in the requires the registration of these substances, entailing theCommodity Chemicals and Glass segments, and our filing of extensive data on their potential risks to humanprimary energy cost is natural gas. PPG purchases 60-to-70 health and the environment. Registration activities aretrillion British Thermal Units (BTUs) of natural gas each occurring in three phases over an 11-year period, basedyear. Inclusive of the impact of PPG’s natural gas hedging on tonnage and level of concern. The first registrationactivities, PPG’s 2011 natural gas unit cost decreased 15 deadline was December 1, 2010. Subsequent phases endpercent in the U.S. compared to 2010, reflecting higher in 2013 and 2018. In the case of chemicals with a highnatural gas supply stemming from the success of shale gas level of concern, the regulation calls for progressivedrilling. In our Commodity Chemicals business, the substitution unless no alternative can be found; in thesepositive impact of the lower natural gas prices was partially cases, authorization of the chemicals will be required.offset by an increase in ethylene prices. During 2011, PPG’s PPG established a dedicated organization to managecosts for ethylene increased substantially compared to 2010 REACH implementation. We have continued to reviewdriven by a combination of tight supply due to production our product portfolio, worked closely with our suppliersoutages and increased global demand, particularly in U.S. to assure their commitment to register substances in ourexports of ethylene derivative products. key raw materials and started registration of substances that PPG manufactures or imports as raw materials. We Most of the raw materials and energy used in will continue to work with our suppliers to understandproduction are purchased from outside sources, and the the future availability and viability of the raw materials weCompany has made, and plans to continue to make, use in our production processes.supply arrangements to meet the planned operatingrequirements for the future. Supply of critical raw Compliance with the REACH legislation will result inmaterials and energy is managed by establishing contracts, increased costs related to the registration process, productmultiple sources, and identifying alternative materials or testing and reformulation, risk characterization andtechnology whenever possible. The Company is participation in Substance Information Exchange Forumscontinuing its aggressive sourcing initiatives to support its (“SIEFs”) required to coordinate registration dossiercontinuous efforts to find the lowest raw material costs. preparation. PPG identified 10 substances that required 2011 PPG ANNUAL REPORT AND FORM 10-K 7
  • 10. registration in 2010 and engaged with other key materially dependent upon any single patent or group of companies through SIEFs to develop the required related patents. PPG earned $55 million in 2011, $58 registration dossiers. Actual costs for substance million in 2010 and $45 million in 2009 from royalties registration were not significant in 2010 or 2011, due and the sale of technical know-how. primarily to fewer substances requiring registration than Backlog originally anticipated. The costs for 2013 and 2018 registrations and potential additional future testing in In general, PPG does not manufacture its products support of 2010 registrations are currently unclear; against a backlog of orders. Production and inventory however, our current estimate of the total spend during levels are geared primarily to projections of future 2012-2018 is in the range of $10 million to $25 million. demand and the level of incoming orders. We anticipate that some current raw materials and products will be subject to the REACH authorization Non-U.S. Operations process and believe that we will be able to demonstrate PPG has a significant investment in non-U.S. adequate risk management for the use and application of the majority of such substances. operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one Changes to chemical control regulations have been region. As a result of our expansion outside the U.S., we are proposed or implemented in many countries beyond the subject to certain inherent risks, including economic and EU, including China, Canada, the United States, and political conditions in international markets and Korea. Because implementation of many of these fluctuations in foreign currency exchange rates. programs have not been finalized, the financial impact can not be estimated at this time. We anticipate chemical Our sales generated by products sold in the developed control regulations will continue to increase globally, and and emerging regions of the world over the past three we have implemented programs to track and comply with years are summarized below: the regulations. (millions) Sales 2011 2010 2009 Research and Development United States, Canada, Western Europe $10,844 $ 9,837 $ 9,252 Technology innovation has been a hallmark of PPG’s Latin America, Eastern Europe, Middle success throughout its history. Research and development East, Africa, Asia Pacific 4,041 3,586 2,987 costs, including depreciation of research facilities, were Total $14,885 $13,423 $12,239 $445 million, $408 million and $403 million during 2011, 2010 and 2009, respectively. These costs totaled Seasonality approximately 3% of sales in each year of the period from PPG’s earnings are typically greater in the second and 2009 to 2011. PPG owns and operates several facilities to third quarters and cash flow from operations is greatest in conduct research and development relating to new and the fourth quarter due to end-use market seasonality, improved products and processes. Additional process and primarily in PPG’s architectural coatings businesses. product research and development work is also undertaken Demand for PPG’s architectural coatings products is at many of the Company’s manufacturing plants. As part of typically strongest in the second and third quarters due to our ongoing efforts to manage our formulations and raw higher home improvement, maintenance and construction material costs effectively, we operate a global competitive activity during the spring and summer months in North sourcing laboratory in China. We have obtained America and Europe. This higher activity level results in government funding of a small portion of the Company’s higher outstanding receivables that are collected in the research efforts, and we will continue to pursue fourth quarter generating higher fourth quarter cash flow. government funding. Because of the Company’s broad array of products and customers, PPG is not materially Employee Relations dependent upon any single technology platform. The average number of persons employed worldwide by PPG at December 31, 2011 was 38,400. The Company The Company seeks to optimize its investment in has numerous collective bargaining agreements research and development to create new products to drive throughout the world. While we have experienced profitable growth. We align our product development occasional work stoppages as a result of the collective with the macro trends in the end-use markets we serve bargaining process and may experience some work and leverage core technology platforms to develop stoppages in the future, we believe we will be able to products for unmet market needs. Our history of negotiate all labor agreements on satisfactory terms. To successful technology introductions is based on a commitment to an efficient and effective innovation date, these work stoppages have not had a significant process and disciplined portfolio management. impact on PPG’s operating results. Overall, the Company believes it has good relationships with its employees. Patents Environmental Matters PPG considers patent protection to be important. The PPG is subject to existing and evolving standards Company’s reportable business segments are not relating to protection of the environment. Capital8 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 11. expenditures for environmental control projects were $15 respectively. Cash outlays related to such environmentalmillion, $16 million and $27 million in 2011, 2010 and remediation aggregated $59 million, $34 million and $242009, respectively. It is expected that expenditures for million in 2011, 2010 and 2009, respectively. The impactsuch projects in 2012 will be in the range of $15 – $20 of foreign currency translation decreased the liability bymillion. Although future capital expenditures are difficult $3 million in 2011 and decreased the liability by $2to estimate accurately because of constantly changing million in 2010. Environmental remediation of a formerregulatory standards and policies, it can be anticipated chromium manufacturing plant site and associated sites inthat environmental control standards will become Jersey City, N.J. (which we refer to as “New Jerseyincreasingly stringent and the cost of compliance will Chrome”) represents the major part of our existingincrease. reserves. Included in the amounts mentioned above were In March of 2011, the United States Environmental $129 million and $168 million in reserves atProtection Agency (“USEPA”) proposed amendments to December 31, 2011 and 2010, respectively, associatedthe national emission standards for hazardous air with all New Jersey chromium sites.pollutants for mercury emissions from mercury cell chlor- The Company’s experience to date regardingalkali plants known as Mercury Maximum Achievable environmental matters leads it to believe that it will haveControl Technology (“Mercury MACT”). The USEPA is continuing expenditures for compliance with provisionsprojecting that it will finalize this rule in September 2012. regulating the protection of the environment and forPPG currently operates one remaining 200 ton-per-day present and future remediation efforts at waste and plantmercury cell production unit at its Natrium, W.Va. sites. Management anticipates that such expenditures willfacility. This unit constitutes approximately 4% of PPG’s occur over an extended period of time.total chlor-alkali production capacity. PPG has made anapplication to the Ohio River Valley Water Sanitation The Company’s continuing efforts to analyze andCommission (“ORSANCO”) for a variance from the assess the environmental issues associated with Newmixing zone prohibition in Section VI G of the Pollution Jersey Chrome and the Calcasieu River Estuary locatedControl Standards, which are to become effective in near our Lake Charles, La. chlor-alkali plant resulted in aOctober 2013. PPG has requested continued use of a pre-tax charge of $173 million in the third quarter ofmixing zone for mercury through the life of the current 2006 for the estimated costs of remediating these sites.permit, which is valid through January 2014 and for any These charges for estimated environmental remediationsubsequent permit. There are on-going discussions with costs in 2006 were significantly higher than PPG’sORSANCO, and PPG expects a decision by the full historical range. Excluding 2006, pre-tax charges againstcommission in 2012. Alternative strategies are under income for environmental remediation have rangedconsideration to enable the Natrium, W.Va. facility to between $10 million and $35 million per year for the pastoperate the mercury production unit in compliance with 15 years. Changes in 2012 may again be above thisthe new standards if this request for a variance is denied. historical range as information is being generated from the continuing remedial investigation activities related to PPG is negotiating with various government agencies New Jersey Chrome that will be incorporated into a finalconcerning 103 current and former manufacturing sites remedial action work plan to be submitted in mid-2012,and offsite waste disposal locations, including 20 sites on which may result in an increase the existing reserve. Inthe National Priority List. While PPG is not generally a addition to the amounts currently reserved, we may bemajor contributor of wastes to these offsite waste disposal subject to loss contingencies related to environmentallocations, each potentially responsible party may face matters estimated to be as much as $200 million to $400governmental agency assertions of joint and several million. Such unreserved losses are reasonably possibleliability. Generally, however, a final allocation of costs is but are not currently considered to be probable ofmade based on relative contributions of wastes to the site. occurrence. This range of reasonably possible unreservedThere is a wide range of cost estimates for cleanup of losses relate to environmental matters at a number ofthese sites, due largely to uncertainties as to the nature sites; however, about 50 percent of this range relates toand extent of their condition and the methods that may additional costs at New Jersey Chrome, about 25 percenthave to be employed for their remediation. The Company relates to the Calcasieu River Estuary and three operatinghas established reserves for onsite and offsite remediation PPG plant sites in the Company’s chemicals businesses,of those sites where it is probable that a liability has been and the remaining 25 percent relates to a number of otherincurred and the amount can be reasonably estimated. As sites, including legacy glass manufacturing sites. The lossof December 31, 2011 and 2010, PPG had reserves for contingencies related to these sites include significantestimated environmental remediation costs totaling $226 unresolved issues such as the nature and extent ofmillion and $272 million, respectively, of which $59 contamination at these sites and the methods that maymillion and $83 million, respectively, were classified as have to be employed to remediate them.current liabilities. Pretax charges against income forenvironmental remediation costs in 2011, 2010 and 2009 In management’s opinion, the Company operates intotaled $16 million, $21 million and $11 million, an environmentally sound manner, is well positioned, 2011 PPG ANNUAL REPORT AND FORM 10-K 9
  • 12. relative to environmental matters, within the industries in announced its decision to disband its own voluntary which it operates and the outcome of these environmental Climate Leaders program, of which PPG had been a contingencies will not have a material adverse effect on member. PPG has, and will continue to, annually report PPG’s financial position or liquidity; however, any such our global GHG emissions to the voluntary Carbon outcome may be material to the results of operations of Disclosure project. any particular period in which costs, if any, are Energy prices and availability of supply continue to recognized. See Note 15, “Commitments and Contingent be a concern for major energy users. Since PPG’s GHG Liabilities,” under Item 8 of this Form 10-K for additional emissions arise principally from combustion of fossil information related to environmental matters and our fuels, PPG has for some time recognized the desirability of accrued liability for estimated environmental remediation reducing energy consumption and GHG generation. In costs. 2007, PPG announced corporate targets, namely (i) a Public and governmental concerns related to climate reduction in energy intensity by 25% from 2006 to 2016 change continue to grow, leading to efforts to limit the and (ii) a 10% absolute reduction in GHG emissions from greenhouse gas (“GHG”) emissions believed to be 2006 to 2011. Effective energy management practices led responsible. These concerns were reflected in the 2005 to a four percent decline in PPG’s GHG emissions. While framework for GHG reduction under the Kyoto Protocol to PPG fell short of its goal of reducing GHG emissions by the United Nations Framework Convention on Climate 10 percent, the Company continues to work toward this Change (“UNFCCC”). The Kyoto Protocol was adopted by long-term goal. PPG participates in the U.S. Department many countries where PPG operates, including the European of Energy (“DOE”) Save Energy Now LEADER Program Union and Canada, though not by the U.S. The European reinforcing the company’s voluntary efforts to Union implemented a cap and trade approach with a significantly reduce its industrial energy intensity. In mandatory emissions trading scheme for GHGs. The recent September 2011, the DOE changed its approach to energy 2011 UNFCC Climate Change Conference in Durban, South efficiency in the industrial sector and initiated the Better Africa resulted in the first agreement that includes both Buildings, Better Plants program. PPG is currently developed and developing (China and India) countries. The participating in this new program, which sets energy parties, including the U.S., Britain, China and India agreed to savings targets and provides a suite of educational, adopt, by 2015, a universal legal agreement to cut carbon training, and technical resources to help meet those emissions. While PPG has operations in many of these targets. Recognizing the continuing importance of this countries, a substantial portion of PPG’s GHG emissions are matter, PPG has a senior management group with a generated by locations in the U.S., where considerable mandate to guide the Company’s progress in this area. legislative and regulatory activity has been taking place. In March of 2011 the USEPA issued Clean Air Act As a result of a U.S. Supreme Court ruling in April emissions standards for large and small boilers and 2007 declaring that GHGs are air pollutants covered by the incinerators that burn solid waste known as the Boiler Clean Air Act, USEPA proposed and later finalized in Maximum Achievable Control Technology (“Boiler December 2009 an Endangerment Finding that GHG MACT”) regulations. These regulations are aimed at emissions “threaten public health and welfare of current controlling emissions of air toxics. As a result of numerous and future generations”. Based on the Endangerment petitions from both industry and environmental groups, Finding, the USEPA proposed then finalized new, USEPA was required to reconsider their March 2011 final “tailored” thresholds for GHG emissions that define when rule. On December 23, 2011 the USEPA’s Proposed Rule Clean Air Act New Source Review and title V operating reconsidering the Boiler MACT regulations was published permit programs would be required for new or existing in the Federal Register. USEPA has indicated its intent to industrial facilities. These rules impose new permit issue the final regulations in early 2012 requiring that requirements on PPG facilities emitting more than 100,000 covered facilities achieve compliance within three years. tons of GHGs per year as well as on new equipment There are 11 PPG facilities that will likely be subject to installations that will emit more than 75,000 tons of GHGs these regulations, with the 115 megawatt coal fired power per year. The U.S. federal government has committed to a plant at PPG’s Natrium, W.Va. facility being the most 17% economy-wide emission reduction target below 2005 significantly impacted. PPG continues to evaluate levels by 2020. The potential impact on PPG of the alternative paths of either retrofitting the Natrium boilers implementation of these requirements will not be known to burn natural gas or to engineer and install pollution until related guidelines are proposed and finalized. control equipment. The estimated potential cost for these capital improvements at our Natrium facility could be in With the enactment of USEPA’s own GHG reporting, the $15-$20 million range. The cost impact for the other verification, and permitting regulations, PPG made the affected facilities is not currently known, but is expected to decision to withdraw from the U.S.-based Climate be of a lesser magnitude. Registry reporting program. With formal regulations in place, PPG no longer saw sufficient value in continuing to PPG’s public disclosure on energy security and belong to this voluntary program. Also in 2010, USEPA climate change can be viewed in our Sustainability Report10 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 13. www.ppg.com/sustainability or at the Carbon Disclosure coatings raw material costs inflated by approximately 10-Project www.cdproject.net. to-12 percent for the Company. The largest inflationAvailable Information impacts were from titanium dioxide pigments and certain propylene-based resins. During 2011, the incremental The Company’s website address is www.ppg.com. The cost of coatings raw materials due to inflation wasCompany posts, and shareholders may access without approximately $440 million. This compares to coatingscharge, the Company’s recent filings and any amendments raw material inflation of approximately $210 million inthereto of its annual reports on Form 10-K, quarterly reports 2010 and a benefit of $150 million in 2009 from loweron Form 10-Q and its proxy statements as soon as coatings raw material prices reflecting a drop in overallreasonably practicable after such reports are filed with the commodity prices due to the recession.Securities and Exchange Commission (“SEC”). TheCompany also posts all financial press releases and earnings We also import raw materials and intermediates,releases to its website. All other reports filed or furnished to particularly for use at our manufacturing facilities in thethe SEC, including reports on Form 8-K, are available via emerging regions of the world. In most cases, thosedirect link on PPG’s website to the SEC’s website, imports are priced in the currency of the supplier and,www.sec.gov. Reference to the Company’s and SEC’s websites therefore, if that currency strengthens against theherein does not incorporate by reference any information currency of our manufacturing facility, our margins are atcontained on those websites and such information should risk of being lowered.not be considered part of this Form 10-K. Most of the raw materials and energy used inItem 1A. Risk Factors production are purchased from outside sources, and the Company has made, and plans to continue to make, supply As a global manufacturer of coatings, chemicals and arrangements to meet the planned operating requirementsglass products, we operate in a business environment that for the future. Supply of critical raw materials and energy isincludes risks. These risks are not unlike the risks we managed by establishing contracts, multiple sources, andhave faced in the recent past nor are they unlike risks identifying alternative materials or technology whenever possible. The Company is continuing its aggressivefaced by our competitors. Each of the risks described in sourcing initiatives to support its continuous efforts to findthis section could adversely affect our operating results, the lowest raw material costs. These initiatives includefinancial position and liquidity. While the factors listed reformulation of our products using both petroleum-here are considered to be the more significant factors, no derived and bio-based materials as part of a productsuch list should be considered to be a complete statement renewal strategy, qualifying multiple and local sources ofof all potential risks and uncertainties. Unlisted factors supply, including suppliers from Asia and other lower costmay present significant additional obstacles which may regions of the world, and strategic initiatives with multipleadversely affect our business. global suppliers to secure and enhance PPG’s supply of titanium dioxide and other materials.Increases in prices and declines in the availability of rawmaterials could negatively impact our financial results. An inability to obtain critical raw materials would Our financial results are significantly affected by the cost adversely impact our ability to produce products.of raw materials and energy, including natural gas. Energy is Increases in the cost of raw materials and energy maya significant production cost in the Commodity Chemicals have an adverse effect on our earnings or cash flow in theand Glass segments, and our primary energy cost is natural event we are unable to offset these higher costs in a timelygas. Each one-dollar change in our unit cost of natural gas manner.per million British Thermal Units has a direct impact of The pace of economic growth and level of uncertainty couldapproximately $60 million to $70 million on our annual have a negative impact on our results of operations andoperating costs. Inclusive of the impact of PPG’s natural gas cash flows.hedging activities, PPG’s 2011 natural gas unit cost During 2008, worldwide demand for many of ourdecreased 15 percent in the U.S. compared to 2010, products declined significantly as the impact of thereflecting higher natural gas supply stemming from the recession spread globally. Many global industrial end-usesuccess of shale gas drilling. Also, in our Commodity markets remained depressed for most of 2009. DuringChemicals segments, ethylene is a key raw material. During 2010, the global economy began to mend; however, the2011, PPG’s costs for ethylene increased substantially pace of recovery was uneven. Beginning in 2011, overallcompared to 2010 driven by a combination of tight supplies activity levels in most major global economies and indue to production outages and increased global demand, most end-use markets exhibited year-over-year growth.particularly in U.S. exports of ethylene derivative products. The North American economy experienced early overall improving industrial and chemical activity, particularly Coatings raw materials both organic, primarily solid improvement in automotive OEM production.petroleum based, and inorganic, generally comprise However, as the year progressed, factors such asbetween 70-to-80 percent of coatings cost of goods sold in unemployment rates, impasses on government policy andmost coatings formulations and represent PPG’s single concerns over the global economy limited the rate oflargest production cost component. In 2011, overall economic growth in this region. The European economy 2011 PPG ANNUAL REPORT AND FORM 10-K 11
  • 14. underperformed most other major economies. Economic remediation costs at December 31, 2011. Our assessment activity in this region, which was growing slowly, began of the potential impact of these environmental to fade, and demand in many end-use markets served by contingencies is subject to considerable uncertainty due PPG turned negative late in the year. In many emerging to the complex, ongoing and evolving process of economies, such as those in Asia and Latin America, investigation and remediation, if necessary, of such economic activity surpassed the pre-recession pace due, in environmental contingencies, and the potential for part, to continued industrial and infrastructure growth in technological and regulatory developments. As such, in these regions. However, inflation concerns and addition to the amounts currently reserved, we may be government fiscal policies in these regions dampened subject to loss contingencies related to environmental demand. Entering 2012, our expectation is for the pace of matters estimated to be as much as $200 million to $400 economic activity to continue to vary by region and by million. Such unreserved losses are reasonably possible end-use market. In North America, most major sectors of but are not currently considered to be probable of the economy are expected to strengthen as the recovery occurrence. continues to gradually move the economy back to pre- recession levels. The European economy is expected to We are involved in a number of lawsuits and claims, and mildly contract in early 2012 despite growth in exported we may be involved in future lawsuits and claims, in which products, but there is downside risk the economic substantial monetary damages are sought. conditions in Europe could be even weaker in 2012. The PPG is involved in a number of lawsuits and claims, growth rate in emerging regions is expected to continue both actual and potential in which substantial monetary to moderate and be more erratic but still outpace that of damages are sought. Those lawsuits and claims relate to the developed regions. Based on our broad geographic contract, patent, environmental, product liability, anti- footprint and extensive end-use market exposure, we trust and other matters arising out of the conduct of PPG’s expect to see overall higher demand in 2012 versus 2011, current and past business activities. Any such claims, however, the extent of variations in the global economy and their impacts on various end-use markets that we whether with or without merit, could be time consuming, serve is not known. PPG provides products and services expensive to defend and could divert management’s to a variety of end-use markets and in many geographies. attention and resources. We maintain insurance against While this broad end-use market exposure and expanded some, but not all, of these potential claims, and the levels geographic presence lessens the significance of any of insurance we do maintain may not be adequate to fully significant or rapid decrease in activity levels, cover any and all losses. We believe that, in the aggregate, nonetheless, lower demand levels may result in lower the outcome of all current lawsuits and claims involving sales which would result in reduced earnings and cash PPG, including asbestos-related claims in the event the flows. settlement described in Note 15, “Commitments and We are subject to existing and evolving standards relating Contingent Liabilities” under Item 8 of this Form 10-K to the protection of the environment. does not become effective, will not have a material effect Environmental laws and regulations control, among on PPG’s consolidated financial position or liquidity; other things, the discharge of pollutants into the air and however, such outcome may be material to the results of water, the handling, use, treatment, storage and clean-up operations of any particular period in which costs, if any, of hazardous and non-hazardous wastes, the investigation are recognized. Nonetheless, the results of any future and remediation of soil and groundwater affected by litigation or claims are inherently unpredictable, but such hazardous substances, and regulate various health and outcomes could have a material adverse effect on our safety matters. The environmental laws and regulations results of operations, cash flow or financial condition. we are subject to, including those in the United States as well as in other countries in which we operate, impose For over 30 years, we have been a defendant in lawsuits liability for the costs of, and damages resulting from, involving claims alleging personal injury from exposure to cleaning up current sites, past spills, disposals and other asbestos. releases of hazardous substances. Violations of these laws Most of our potential exposure relates to allegations and regulations can also result in fines and penalties. by plaintiffs that PPG should be liable for injuries Future environmental laws and regulations may require involving asbestos containing thermal insulation products substantial capital expenditures or may require or cause manufactured by Pittsburgh Corning Corporation (“PC”). us to modify or curtail our operations, which may have a PPG is a 50% shareholder of PC. Although we have material adverse impact on our business, financial condition and results of operations. entered into a settlement arrangement with several parties concerning these asbestos claims as discussed in Note 15, As described in Note 15, “Commitments and “Commitments and Contingent Liabilities,” under Item 8 Contingent Liabilities,” under Item 8 of this Form 10-K, of this Form 10-K, the arrangement remains subject to we are currently undertaking environmental remediation court proceedings and, if not approved, the outcome activities at a number of our facilities and properties, the could be material to the results of operations of any cost of which is substantial. We have accrued a particular period. $226 million liability for estimated environmental12 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 15. We are subject to a variety of complex U.S. and non-U.S. decreases in the value of the U.S. dollar against other majorlaws and regulations which could increase our compliance currencies will affect our net revenues, operating incomecosts. and the value of balance sheet items denominated in We are subject to a wide variety of complex U.S. and foreign currencies. We use derivative financial instrumentsnon-U.S. laws and regulations, and legal compliance risks, to reduce our net exposure to currency exchange rateincluding securities laws, tax laws, environmental laws, fluctuations related to foreign currency transactions.employment and pension-related laws, competition laws, However, fluctuations in foreign currency exchange rates,U.S. and foreign export and trading laws, and laws particularly the strengthening of the U.S. dollar againstgoverning improper business practices, including bribery. major currencies, could materially affect our financialWe are affected by new laws and regulations and changes results.to existing laws and regulations, including interpretations As a producer of commodity chemicals, we manufactureby courts and regulators. These laws and regulations and transport certain materials that are inherentlyeffectively expand our compliance obligations and potential hazardous due to their toxic nature.enforcement actions by governmental authorities orlitigation related to them. We have significant experience in handling these materials and take precautions to handle and transport New laws and regulations or changes in existing laws them in a safe manner. However, these materials, ifor regulations or their interpretation could increase our mishandled or released into the environment, could causecompliance costs. For example, regulations concerning substantial property damage or personal injuries resultingthe composition, use and transport of chemical products in significant legal claims against us. In addition, evolvingcontinue to evolve. Developments concerning these regulations concerning the security of chemicalregulations could potentially impact (i) the availability or production facilities and the transportation of hazardousviability of some of the raw materials we use in our chemicals could result in increased future capital orproduct formulations and/or (ii) our ability to supply operating costs.certain products to some customers or markets. Import/export regulations also continue to evolve and could Business disruptions could have a negative impact on ourresult in increased compliance costs, slower product results of operations and financial condition.movements or additional complexity in our supply chains. Unexpected events, including supply disruptions,Our international operations expose us to additional risks temporary plant and/or power outages, natural disastersand uncertainties that could affect our financial results. and severe weather events, computer system disruptions, fires, war or terrorist activities, could increase the cost of PPG has a significant investment in non-U.S. doing business or otherwise harm the operations of PPG,operations. This broad geographic footprint serves to our customers and our suppliers. It is not possible for uslessen the significance of economic impacts occurring in to predict the occurrence or consequence of any suchany one region. Notwithstanding the benefits of events. However, such events could reduce demand forgeographic diversification, our ability to achieve and our products or make it difficult or impossible for us tomaintain profitable growth in international markets is receive raw materials from suppliers or to deliversubject to risks related to the differing legal, political, products to customers.social and regulatory requirements and economicconditions of many countries. As a result of our We may have difficulty integrating acquired businesses.expansion outside the U.S., we are subject to certain In the past 15 years, PPG has completed over 50inherent risks, including political and economic acquisitions to further the growth of the Company, anduncertainty, inflation rates, exchange rates, trade we will likely acquire additional businesses and enter intoprotection measures, local labor conditions and laws, additional joint ventures in the future as part of ourrestrictions on foreign investments and repatriation of growth strategy. Making acquisitions and forming jointearnings, and weak intellectual property protection. Our ventures involve risks, including:percentage of sales generated in 2011 by products soldoutside the U.S. was approximately 58%. • difficulties in assimilating acquired companies and products into our existing business;Fluctuations in foreign currency exchange rates could • delays in realizing the benefits from the acquiredaffect our financial results. companies or products; We earn revenues, pay expenses, own assets and incur • diversion of our management’s time and attentionliabilities in countries using currencies other than the U.S. from other business concerns;dollar. Because our consolidated financial statements arepresented in U.S. dollars, we must translate revenues and • difficulties due to lack of or limited priorexpenses into U.S. dollars at the average exchange rate experience in any new markets we may enter;during each reporting period, as well as assets and • unforeseen claims and liabilities, includingliabilities into U.S. dollars at exchange rates in effect at the unexpected environmental exposures or productend of each reporting period. Therefore, increases or liability; 2011 PPG ANNUAL REPORT AND FORM 10-K 13
  • 16. • unexpected losses of customers or suppliers of the The Company’s principal research and development acquired business; centers are located in Allison Park, Pa.; Harmarville, Pa.; • difficulty in conforming the acquired business’ and Monroeville, Pa. standards, processes, procedures and controls with The Company’s headquarters and company-owned our operations; and paint stores are located in facilities that are typically • difficulties in retaining key employees of the leased while the Company’s other facilities are generally acquired businesses. owned. Our facilities are considered to be suitable and Our failure to address these risks or other problems adequate for the purposes for which they are intended and encountered in connection with our past or future overall have sufficient capacity to conduct business in the acquisitions and joint ventures could cause us to fail to upcoming year. realize the anticipated benefits of such acquisitions or Item 3. Legal Proceedings joint ventures and could adversely affect our results of PPG is involved in a number of lawsuits and claims, operations, cash flow or financial condition. both actual and potential, including some that it has Item 1B. Unresolved Staff Comments asserted against others, in which substantial monetary None. damages are sought. These lawsuits and claims, the most Item 2. Properties significant of which are described below, relate to contract, patent, environmental, product liability, antitrust and other The Company’s corporate headquarters is located in matters arising out of the conduct of PPG’s current and past Pittsburgh, Pa. The Company’s manufacturing facilities, business activities. To the extent that these lawsuits and sales offices, research and development centers and claims involve personal injury and property damage, PPG distribution centers are located throughout the world. The believes it has adequate insurance; however, certain of Company operates 128 manufacturing facilities in 45 PPG’s insurers are contesting coverage with respect to some countries. The Company’s principal manufacturing and of these claims, and other insurers, as they had prior to the distribution facilities are as follows: asbestos settlement described below, may contest coverage Performance Coatings: Clayton, Australia; Delaware, Ohio; with respect to some of the asbestos claims if the settlement Dover, Del.; Huntsville, Ala.; Kunshan, is not implemented. PPG’s lawsuits and claims against China; Little Rock, Ark.; Milan, Italy; Mojave, Calif.; Stowmarket, United others include claims against insurers and other third Kingdom; Sylmar, Calif.; about 400 parties with respect to actual and contingent losses related company-owned stores in the United to environmental, asbestos and other matters. States and about 40 company-owned stores in Australia The results of any future litigation and the above lawsuits and claims are inherently unpredictable. Industrial Coatings: Cieszyn, Poland; Cleveland, Ohio; Oak Creek, Wis.; Sumaré, Brazil; Tianjin, However, management believes that, in the aggregate, the China; Quattordio, Italy; San Juan del outcome of all lawsuits and claims involving PPG, Rio, Mexico; Zhangjiagang, China and including asbestos-related claims in the event the Busan, South Korea settlement described below does not become effective, Architectural Coatings—EMEA: Soborg, Denmark; Moreuil, France; will not have a material effect on PPG’s consolidated Budapest, Hungary; Amsterdam, financial position or liquidity; however, such outcome Netherlands; Uithorn, Netherlands; may be material to the results of operations of any Wroclaw, Poland; Birstall, the United Kingdom and about 650 company- particular period in which costs, if any, are recognized. owned stores, including 212 stores in For over 30 years, PPG has been a defendant in France and 193 stores in the United lawsuits involving claims alleging personal injury from Kingdom exposure to asbestos. For a description of asbestos Optical and Specialty Materials: Barberton, Ohio; Bangkok, Thailand; litigation affecting the Company and the terms and status Lake Charles, La. and Manila, Philippines of the proposed asbestos settlement arrangement, see Commodity Chemicals: Lake Charles, La. and Natrium, W. Va. Note 15, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K. Glass: Carlisle, Pa.; Hoogezand, Netherlands; Shelby, N.C. and Wichita Falls, Texas In the past, the Company and others have been named as defendants in several cases in various Including the principal manufacturing facilities noted jurisdictions claiming damages related to exposure to lead above, the Company has manufacturing facilities in the and remediation of lead-based coatings applications. PPG following geographic areas: has been dismissed as a defendant from most of these United States: 34 manufacturing facilities in 20 states. lawsuits and has never been found liable in any of these Other Americas: 10 manufacturing facilities in 6 countries. cases. EMEA: 55 manufacturing facilities in 27 countries. PPG received a Consolidated Compliance Order and Asia: 28 manufacturing facilities in 11 countries. Notice of Proposed Penalty (“CO/NOPP”) from the14 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 17. Louisiana Department of Environmental Quality Executive Officers of the Company(“LDEQ”) in February 2006 alleging violation of various Set forth below is information related to therequirements of its Lake Charles, La. facility’s air permit Company’s executive officers as of February 16, 2012.based largely upon permit deviations self-reported by Name Age TitlePPG. The CO/NOPP did not contain a proposed civil Charles E. Bunch (a) 62 Chairman of the Board and Chiefpenalty. PPG filed a request for hearing and has engaged Executive Officer since July 2005LDEQ in settlement discussions. Since 2006, PPG has J. Rich Alexander (b) 56 Executive Vice President sinceheld discussions with LDEQ to try to resolve the CO/ August 2010NOPP. In April 2009, PPG offered to settle all of its self- Pierre-Marie De Leener (c) 54 Executive Vice President sincereported air permit deviations through the first half of August 20102008 for a proposed penalty of $130,000. LDEQ Glenn E. Bost II (d) 59 Senior Vice President and Generalresponded to this settlement offer by asking PPG to make Counsel since July 2010another offer that includes all self-reported air permit David B. Navikas (e) 61 Senior Vice President, Finance and Chief Financial Officer since June 2011deviations through the end of 2009. PPG has increased its Richard C. Elias (f) 58 Senior Vice President, Optical andoffer to settle this matter to $171,000. LDEQ has rejected Specialty Materials since July 2008this settlement offer and has asked PPG to consider Michael H. McGarry (g) 53 Senior Vice President, Commodityincreasing its offer. Chemicals since July 2008 Cynthia A. Niekamp (h) 52 Senior Vice President, Automotive PPG received a proposed Consent Order and Final Coatings since August 2010Agreement (“COFA”) from USEPA on May 11, 2011, Viktoras R. Sekmakas (i) 51 Senior Vice President, Industrial Coatingswhich included a proposed penalty of $338,000 relating since August 2010 and President, PPGto the alleged exceedance of emission limits for dioxins Europe since September 2011and furans from the Energy Recovery Unit (“ERU”) at our (a) Mr. Bunch became President and Chief Executive Officer on March 31,Circleville facility. The COFA alleges that PPG failed to 2005 and became Chairman of the Board July 1, 2005. (b) Mr. Alexander is responsible for leading the Architectural Coatings – EMEAmeet dioxin and furan limits during a comprehensive (Europe, Middle East and Africa) and Glass segments, the Architecturalperformance test on the air pollution control equipment Coatings – Americas and Asia Pacific business, Corporate Marketing andon the ERU conducted between August and September of Purchasing and Distribution. Mr. Alexander held the position of Executive2009 until the ERU was temporarily shut down on Vice President, Performance Coatings from August 2010 until August 2011. Mr. Alexander held the position of Senior Vice President, PerformanceSeptember 17, 2009. In the COFA, USEPA also alleged Coatings from May 2005 to August 2010 and held the position of Vicethat PPG failed to comply with its Start-up, Shutdown and President, Industrial Coatings from July 2002 through April 2005.Malfunction Plan (the “SSM Plan”) during an unspecified (c) Mr. De Leener is responsible for leading the refinish, aerospace and protective and marine coatings businesses and Corporate Informationperiod of time in 2009. The ERU resumed operations on Technology. Mr. De Leener held the position of Executive Viceor about October 14, 2009, and PPG believes that it has President, Architectural Coatings – EMEA from August 2010 untilbeen operated in compliance with applicable limits since August 2011 and President, PPG Europe from July 2008 until August 2011. Mr. De Leener was appointed to Senior Vice President,that time. It is PPG’s position that the allegations in the Architectural Coatings – EMEA upon PPG’s acquisition of SigmaKalonCOFA are not correct and that PPG did not violate any Group on January 2, 2008. He previously served as Chief Executiveapplicable legal requirements. On September 30, 2011, Officer of SigmaKalon Group from 1999 until January 2008. (d) Mr. Bost held the position of Vice President and Associate GeneralPPG and USEPA negotiated a settlement in order to Counsel from July 2006 through June 2010. Previously, Mr. Bost servedresolve this matter which has been memorialized in a as Associate General Counsel, Operations from July 2005 through Junerevised COFA. PPG paid to USEPA a civil penalty of 2006 and Assistant General Counsel, Operations from September 2000 through June 2005.$175,000 and revised the ERU’s SSM Plan during the (e) Mr. Navikas held the position of Vice President and Controller fromfourth quarter of 2011. March 2000 until June 2011. (f) Mr. Elias held the position of Vice President, Optical Products from April 2000 until June 2008. (g) Mr. McGarry held the positions of Vice President, Coatings, Europe and Managing Director, PPG Europe from July 2006 through June 2008; and the position of Vice President, Chlor-Alkali and Derivatives from March 2004 through June 2006. Mr. McGarry also has responsibility for Corporate Environmental Health and Safety and Corporate Quality. (h) Ms. Niekamp was appointed Vice President, Automotive Coatings in January 2009 when she joined PPG from BorgWarner, Inc. She previously served as President of BorgWarner’s TorqTransfer Systems business from 2004 until 2008. (i) Mr. Sekmakas held the position of President, PPG Asia Pacific from March 2009 until August 2011. In addition to serving as President, Asia/Pacific, Mr. Sekmakas held the position of Vice President Industrial Coatings from March 2010 through July 2010. He was appointed President, Asia Pacific in March 2009. Previously, Mr. Sekmakas, served as Vice President, Asia Pacific from July 2006 through February 2009, Managing Director, Coatings and General Manager Industrial Coatings – Asia from March 2005 through June 2006 and General Manager Asia Pacific Industrial Coatings from April 2001 through February 2005. 2011 PPG ANNUAL REPORT AND FORM 10-K 15
  • 18. Part II Issuer Purchases of Equity Securities The following table summarizes the Company’s stock Item 5. Market for the Registrant’s Common repurchase activity for the three months ended Equity, Related Stockholder Matters and Issuer December 31, 2011: Purchases of Equity Securities Total Maximum The information required by Item 5 regarding market Number Number of of Shares Shares information, including stock exchange listings and Purchased that May quarterly stock market prices, dividends and holders of Total as Part of Yet Be Number of Average Publicly Purchased common stock is included in Exhibit 13.1 filed with this Shares Price Paid Announced Under the Form 10-K and is incorporated herein by reference. This Month Purchased per Share Programs(1) Programs information is also included in the PPG Shareholder October 2011 Information on page 87 of the Annual Report to Repurchase programs 935,733 $80.36 935,733 10,773,559 shareholders. Other transactions(2) — — Directors who are not also officers of the Company November 2011 receive common stock equivalents pursuant to the PPG Repurchase programs 881,300 85.10 881,300 9,892,259 Industries, Inc., Deferred Compensation Plan for Other transactions(2) 2,011 88.11 Directors (“PPG Deferred Compensation Plan for Directors”). Common stock equivalents are hypothetical December 2011 shares of common stock having a value on any given date Repurchase programs 903,565 83.01 903,565 8,988,694 equal to the value of a share of common stock. Common Other transactions(2) — — stock equivalents earn dividend equivalents that are Total quarter ended converted into additional common stock equivalents but December 31, 2011 carry no voting rights or other rights afforded to a holder Repurchase programs 2,720,598 $82.77 2,720,598 8,988,694 of common stock. The common stock equivalents Other transactions(2) 2,011 88.11 credited to directors under this plan are exempt from (1) These shares were repurchased under a 10 million share repurchase registration under Section 4(2) of the Securities Act of program approved by PPG’s Board of Directors in October 2010 as well 1933 as private offerings made only to directors of the as an additional 10 million share repurchase program approved in Company in accordance with the provisions of the plan. October 2011. The October 2010 repurchase program was concluded in November 2011. The October 2011 repurchase program has no Under the PPG Deferred Compensation Plan for expiration date. (2) Includes shares withheld or certified to in satisfaction of the exercise Directors, each director may elect to defer the receipt of price and/or tax withholding obligation by holders of employee stock all or any portion of the compensation paid to such options who exercised options granted under the Company’s equity director for serving as a PPG director. All deferred compensation plans. payments are held in the form of common stock Item 6. Selected Financial Data equivalents. Payments out of the deferred accounts are The information required by Item 6 regarding the made in the form of common stock of the Company (and selected financial data for the five years ended cash as to any fractional common stock equivalent). The December 31, 2011 is included in Exhibit 13.2 filed with directors, as a group, were credited with 20,575; 15,647; this Form 10-K and is incorporated herein by reference. and 22,103 common stock equivalents in 2011, 2010 and This information is also reported in the Five-Year Digest 2009, respectively, under this plan. The values of the on page 86 of the Annual Report to shareholders. common stock equivalents, when credited, ranged from $68.68 to $94.64 in 2011, $60.36 to $80.90 in 2010 and $34.34 to $58.51 in 2009.16 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 19. Item 7. Management’s Discussion and Analysis of Cost of sales, exclusive of depreciation andFinancial Condition and Results of Operations amortization, increased by $867 million in 2011 to $9,081 million compared to $8,214 million in 2010. About fifty-Performance in 2011 compared with 2010 five percent of the increase was driven by inflation, particularly increases in raw material costs, primarily inPerformance Overview our coatings businesses. Manufacturing costs were again Net sales in 2011 totaled $14,885 million compared positive in 2011. Additionally, about 20 percent of theto $13,423 million in 2010, an increase of 11 percent. increase in cost of sales was due to sales growth fromHigher volumes contributed just over 2 percent and volume and acquisitions. The effect of foreign currencyhigher selling prices increased sales by 5 percent. The accounts for about 25 percent of the increase in cost ofremainder of the sales increase was due to the impact of sales for the year. Cost of sales as a percentage of salesforeign currency translation and acquisitions. The higher was 61.0 percent in 2011 compared to 61.2 percent insales volumes were achieved in all major geographic 2010. This improvement reflects a combination of slightlyregions, while four reportable segments had increased higher margins on the sales volume growth in 2011 due tovolume levels and the other two had level year-over-year improved product mix and the benefit of selling pricevolumes. increases, particularly in Commodity Chemicals, net of the impact of inflation on cost of sales. For the coatings Increased demand was driven by stronger global businesses, higher pricing significantly offset inflation, asindustrial production activity, which aided many of our raw material costs escalated throughout 2011. However,businesses. The global industrial recovery continued in the coatings businesses did not fully offset raw material2011 with solid growth in emerging regions and North cost inflation with higher pricing in 2011, and additionalAmerica and with modest improvement in Europe despite pricing actions are underway in 2012 in severala slight decline in volume in the second half of 2011 due businesses to further counter inflation absorbed in 2011.to reduced end-use market demand for fiber glass and For the Company in total, inflation was more than offsetautomotive refinish based on softness in the region. by higher pricing aided by Commodity Chemicals.Growth rates in Asia in 2011 were reduced by theshrinking level of marine original-equipment new ship Selling, general and administrative expenses increasedbuilds. Growth was impacted early in the year due to the by $255 million to $3,234 million in 2011 compared toeffects of the Japanese earthquake and tsunami and was $2,979 million in 2010. The effects of foreign currency,also tempered late in the year by the negative sales impact inflation, and growth in costs to support the increasedstemming from the Thailand floods, particularly in optical sales volumes and acquisitions were approximately equal.products. North American growth was impacted by Selling, general and administrative costs as a percentage ofunscheduled production outages in the Commodity sales were 21.7 percent in 2011, down from 22.2 percentChemicals segment earlier in 2011 as well as decreased in 2010 reflecting the benefit of our continuing effort tochlorine industry demand in the fourth quarter. Activity aggressively manage our cost growth as our sales volumein construction markets in the developed regions of the increases.world remained at low levels and has not demonstrated Interest expense increased $21 million to $210any consistent improvement. Our volume growth for million in 2011 from $189 million in 2010. This increase2011 versus the prior year growth which benefitted from was driven by the Company’s $1 billion debt issuance inincreasing demand as the global industrial economy began November of 2010 partially offset by an early repaymentto recover from the recession. Also, volumes were flat in of $400 million in term loans in June 2011. Interestthe fourth quarter of 2011 as customers curtailed their income increased $8 million to $42 million in 2011 frominventory and were cautious with their order patterns, $34 million in 2010 due to higher average short termreflecting economic uncertainty. The improved selling investment balances in 2011 compared to 2010.prices in 2011 were achieved in every reporting segment, Other charges decreased $11 million to $73 million inled by Commodity Chemicals and each of the three 2011 from $84 million in 2010 due principally to thecoatings segments. The Commodity Chemicals segment absence of a $6 million antitrust litigation settlementachieved pricing gains due to continued strong demand charge which occurred in 2010 and lower environmentaland tightening supply of caustic soda. In our coatings remediation expense in 2011 of $5 million.segments, prices were raised in response to persistent rawmaterial cost inflation. The higher coatings selling prices The effective tax rate on pretax earnings in 2011 wassignificantly, but did not fully, offset the impact of raw approximately 24 percent compared to approximately 32material inflation rates that began to flatten in the fourth percent in 2010. The 2011 rate includes a benefit of $12quarter. The favorable currency impact was primarily million resulting from a favorable tax audit settlement.driven by strengthening European, Asian and Latin The 2011 rate also includes the impact of the non-taxableAmerican currencies against the U.S. dollar compared to bargain purchase gain resulting from the Equa-Chlor2010, despite a decline in the value of the Euro in the acquisition. The effective rate was 25 percent on thesecond half of 2011. remaining pretax earnings in 2011. 2011 PPG ANNUAL REPORT AND FORM 10-K 17
  • 20. The 2010 tax rate includes expense of $85 million and weaker European activity levels in the second half of resulting from the reduction of our previously provided the year. Marine coatings volumes were down reflecting deferred tax asset related to our liability for retiree the decline in ship build activity and reduced global medical costs. The deferred tax asset needed to be shipping during the last quarter of 2011. Improved reduced because the healthcare legislation enacted in protective coatings volumes in most regions, reflecting March 2010 included a provision that reduced the higher energy and infrastructure demand, partly offset the amount of retiree medical costs that will be deductible sales decline in marine. U.S. architectural coatings after December 31, 2012. The 2010 rate also included a volumes were relatively flat. This included the severely $5 million benefit as a result of enacted changes in negative volume trends in the U.S. early in 2011 due to statutory tax rates outside the U.S. The effective rate was weather conditions. Architectural volumes in the 26 percent on the remaining pretax earnings in 2010. The emerging regions declined low single digit percentages, decrease in the tax rate on the remaining pretax earnings including the negative impacts from lower demand near in 2011 is mainly the result of tax planning initiatives in the end of 2011. Segment income in 2011 increased $12 the fourth quarter, the benefit of which are expected to million to $673 million. The impacts of improved continue in 2012. volumes in automotive refinish and aerospace, manufacturing cost reductions and favorable currency Net income (attributable to PPG) and earnings per impacts more than offset the negative impact of inflation share – assuming dilution (attributable to PPG) for 2011 net of price to result in the earnings improvement in 2011 and 2010 are summarized below: compared to 2010. Pricing improved in all businesses (Millions, except per share amounts) reflecting our continuing efforts to address persistent Year ended December 31, 2011 Net Income input cost inflation. $ EPS Net income (attributable to PPG) $1,095 $6.87 Looking ahead to the first quarter 2012, lower marine (Millions, except per share amounts) activity levels are expected to continue. Strong aerospace Year ended December 31, 2010 Net Income demand is also expected to carry-forward. U.S. $ EPS architectural volumes are anticipated to be flat-to-modestly Net income (attributable to PPG) $ 769 $4.63 improved, while emerging region architectural coatings Net income (attributable to PPG) includes: markets are expected to remain challenging. In addition, we intend to implement higher U.S. architectural pricing Charges related to: based on previously announced price increases. Also, we Charge related to change in U.S. tax law $ 85 $0.51 anticipate less customer inventory management impacts in Average shares used to calculate earnings per share – the segment. Currency impacts for the segment are assuming dilution were 157.3 million in 2011 and expected to be negative based on current exchange rates in 164.5 million in 2010. The reduction is the result of share comparison with the first quarter 2011 exchange rates. buyback activity in 2011. Industrial Coatings sales increased $450 million, or 12 percent compared to 2010, to $4,158 million. The sales Results of Reportable Business Segments increase was comprised of 5 percent due to volume, 4 Net sales Segment income percent due to price and 3 percent due to currency. Segment (Millions) 2011 2010 2011 2010 income improved 16 percent versus 2010 to $438 million in Performance Coatings $4,626 $4,281 $673 $661 2011. This increase was primarily due to increased volumes, Industrial Coatings 4,158 3,708 438 378 lower manufacturing costs and currency, partially offset by Architectural Coatings –EMEA 2,104 1,874 123 113 the negative impact of inflation net of increases in selling Optical and Specialty Materials 1,204 1,141 326 307 prices and growth-driven increases in overhead costs. Commodity Chemicals 1,732 1,434 370 189 Segment volume grew by 5 percent on solid global industrial Glass 1,061 985 97 74 demand, with positive results in all three business units. Growth rates were robust in Asia as a result of continued Performance Coatings sales increased $345 million, growth in the region for all three businesses. The automotive or 8 percent, to $4,626 million in 2011. The sales increase OEM business delivered strong single-digit percentage was comprised of 5 percent due to price and 3 percent growth reflecting high growth rates due to the automotive due to currency. Volumes for the segment were slightly industry recovery with continued growth in North America, favorable as volume increases in automotive refinish and Asia Pacific and Latin America, and low growth in Europe aerospace were offset by low-single digit percentage where volumes were positive for the full year but weakened volume declines in the protective and marine coatings and in the second half of the year. Global volumes in the the architectural-Americas and Asia Pacific coatings industrial and packaging businesses were also favorable with businesses. Aerospace volumes continued to grow Asia Pacific the strongest region delivering the majority of reflecting robust industry demand and PPG share gains. the growth, with somewhat lower or even declining volumes Automotive refinish volume increased, but growth was in Europe and North America due, in part, to late year impacted by customer inventory management at year-end customer destocking.18 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 21. Looking ahead, we anticipate continued volume market growth and share gain versus clear lenses ingrowth, including higher global auto production and strong emerging regions. In addition, we are commercializinggeneral industrial activity. We also anticipate further price Vantage® our new Transitions® clear-to-polarized productincreases to restore margin lost to raw material inflation in in the first half of 2012, and we expect increased2011. Currency is expected to be negative to sales and marketing costs associated with the launch of this newearnings in the first quarter. product. We also anticipate recent silica market trends to continue, aided by higher auto production and the tire Architectural Coatings - EMEA sales increased industry focus on improving fuel efficiency through$230 million, or 12 percent, to $2,104 million in 2011. The higher silica content in tires. Similar to other global PPGsales increase was comprised of 5 percent due to the businesses, currency is expected to have a negative year-positive impact of foreign currency translation, a 1 percent over-year impact in the first quarter.increase from acquired business and the remainder from anincrease in selling prices and volume gains. Segment Commodity Chemicals sales in 2011 versus the priorearnings were up $10 million compared to the prior year. year increased $298 million, or 21 percent, to $1,732Positive year-over-year earnings resulted from the earnings million. Higher pricing and the impact of the EquaChlorimpact of volume growth and currency translation. acquisition were the key factors producing the improvedEarnings in 2011 were reduced by a $9 million charge sales and earnings. Segment earnings increased $181related to a U.K.-based retail do-it-yourself customer who million to $370 million in 2011. Capacity utilization wasfiled for bankruptcy during the second quarter of 2011 and lower in the second, third and fourth quarters due tothe adverse impact of inflation net of price increases. planned and unplanned production outages, as well as lower chlorine industry demand in the fourth quarter due Looking ahead, we anticipate soft demand to to customer inventory management and lower chlorinecontinue in Europe as we begin 2012. First quarter 2012 derivative exports, resulting in higher manufacturing andresults will also include the results of the Dyrup maintenance expenses. Natural gas unit costs were loweracquisition, which closed in January 2012. We anticipate year-over-year, but ethylene costs were higher. Annegative currency translation impacts given the segment’s increase in overhead costs was substantially offset bylarge Euro base of sales and earnings and the decline in gains from asset sales, primarily related to the lease ofthe value of the Euro compared with the first quarter of Marcellus Shale natural gas drilling rights on PPG owned2011. property, and lower environmental expense. Optical and Specialty Materials sales for 2011 Looking forward, we anticipate higher chlorineincreased $63 million, or 6 percent, compared to 2010, to demand in the first quarter of 2012 sequentially versus$1,204 million due to a 2 percent increase in volumes, the fourth quarter of 2011 due to both seasonal factorspricing and the favorable impact of currency. Earnings and modest customer inventory restocking. This would result in improved capacity utilization compared to thegrew by 6 percent to $326 million. Both optical products fourth quarter, but still lower versus an exceptionallyand silicas achieved sales growth coming from higher strong operating rate in the first quarter 2011. Causticvolumes, pricing and the impact of currency. The silicas inventory is extremely low, and we intend to implementbusiness’ volumes benefitted from the higher automotive announced caustic price increases in the first quarter.OEM production resulting in increased demand for our Also, the current natural gas market price has declinedproducts sold into the tire and battery markets. Segment below $3.00 per unit.results were tempered by the negative impact from theserious flooding in Thailand that disrupted optical Glass sales increased $76 million, or 8 percent,customers and supply chains. The flooding also impacted compared to 2010 to $1,061 million in 2011. Salesproduction of PPG’s optical materials, resulting in a increased 4 percent due to pricing, 2 percent due todeclaration of force majeure during the fourth quarter. volume growth with the remainder attributable toSegment earnings increased due to the factors increasing favorable foreign currency impacts. Solid fiber glass pricing gains drove the sales growth, together withsales, which exceeded the impact of inflation, higher improved flat glass volumes. Fiber glass volumes weremanufacturing costs and volume driven growth in also up over 2010, but were lower in the fourth quarter ofoverhead cost. 2011 due to lower European demand. Segment earnings Looking ahead, we do not anticipate any notable grew to $97 million, compared to $74 million a year ago.2012 residual impact from the Thailand flooding, as we Higher sales prices and volumes were the primary driversapproached normal operations at the end of December. of the earnings improvement. The earnings results wereWe expect a normal seasonal uptick for optical in the first tempered somewhat by raw material cost inflation, higherquarter and Transitions® growth to resume driven by fiber glass maintenance costs and higher overhead costs. 2011 PPG ANNUAL REPORT AND FORM 10-K 19
  • 22. Looking forward, we anticipate fiber glass volume European sovereign debt loads. Government action was trends to be sequentially comparable with the second half subdued, due in part to disagreement within the of 2011 which was down versus the first half, which may European Union over a course of action, and also due to adversely impact pricing. Flat glass activity is also the already high level of government economic support expected to be comparable with the second half of 2011. within the region. Economic activity, which began the We also expect the electronics market to remain weak year slowly, faded and demand in many end-use markets especially against strong first quarter 2011 comparables served by PPG turned negative late in the year. The region adversely impacting our fiber glass equity earnings. Cost ended the year weaker and with no clear catalyst to control is a perennial focus for this segment. initiate a recovery. Outlook Many of the major emerging economies, such as At the beginning of 2011, overall activity levels in those in Asia Pacific and Latin America, were expanding most major global economies and for most end-use entering 2011, aided by continued growth in exports, markets were experiencing year-over-year growth, expansion of their domestic markets and improved energy although levels in the developed regions were still below or rare earth mineral availability. Inflation concerns in the pre-recession rates of 2008. In many emerging these emerging regions served to either dampen demand regions, economic activity surpassed the pre-recession or caused governments to take action with the same pace due, in part, to continued, solid industrial and objective. Growth rates, however, remained above those infrastructure growth in those regions. One notable in developed regions, with a slowly shifting emphasis exception to the 2011 recovery was the construction toward internal consumption partly offsetting slower or markets in the developed regions, which remained static no growth in exports from the regions. at extremely low activity levels in comparison with the Entering 2012, the expectation is for the pace of past decade. During the middle of 2011, growth rates economic activity to continue to vary by region. In North slowed in most economic sectors and regions, as concerns America, most major sectors of the economy are expected emerged over government debt levels, fiscal policy and to strengthen as the recovery continues to gradually move associated austerity measures. Late in the year, the pace of the economy back toward pre-recession levels. This all major economies slowed, reflecting heightened increased activity level is expected to be led by higher concerns over the potential financial crisis stemming from industrial and chemical production, while improvement government indebtedness and related actions, particularly in construction is likely to be modest and inconsistent. in the Euro zone. The 2012 growth rate in emerging regions is expected to The North American economy generally followed the continue to moderate and be more erratic, but still global trends with improving overall industrial and chemical outpace that of the developed regions. The European activity aided by lower regional energy costs due to increased economy is expected to mildly contract in early 2012, availability of natural gas stemming from the success of shale despite some growth in exports, but there is downside gas drilling. This lower feedstock cost resulted in higher risk the economic conditions in Europe could be even export activity due to the favorable regional energy cost weaker in 2012. input advantages. Also aiding the industrial recovery was Since the middle of 2010, commodity and oil prices continued, solid improvement in automotive OEM have experienced inflation due to tight supply stemming production. Although production levels grew throughout the from manufacturing capacity remaining idled or removed year, they were still considerably lower than pre-recession from service during the recession and improving demand levels. Similar to 2010, construction markets showed initial for commodities. It is anticipated that prices will remain signs of a potential recovery early in the year, but optimism faded, and activity levels were flat until very modest at elevated levels during the first half of 2012. PPG improvements were evidenced late in the year. typically experiences fluctuating prices for energy and raw Unemployment rates, impasses on government policy and materials used in many of our businesses. Factors which concerns over the global economy served as additional impact our input prices are supply/demand imbalances, factors which limited the rate of economic growth in the global industrial activity levels and changes in supplier region. Despite these limitations, the region ended the year feedstock costs. Over the past two years combined, PPG’s with more growth promise than many other major coatings raw material costs have inflated by about $650 developed regional economies. million. Our current forecast for the early portion of 2012 is for overall coatings raw material prices to be flat with At the outset of 2011, growth in the European year-end 2011 levels but up in comparison to full-year economy continued to underperform most other major 2011 reflecting the fact that costs rose during 2011. Given economies as concerns heightened over government the volatility in supply/demand, energy cost and the budget deficits and their ability to sustain or refinance currency environment, it is not feasible to project full- government debt loads. Anxiety rose throughout the year year 2012 raw material pricing. as global financial markets grew more concerned with20 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 23. Changes in natural gas pricing have a significant impact The Company’s cash generation has been consistenton the financial performance of our Commodity Chemicals and at or near record levels over the past four years,and Glass segments. Each one-dollar change in our unit cost despite the recession and a significant increase in the levelof natural gas per million British Thermal Units has a direct of voluntary pension contributions. Over the past twoimpact of approximately $60 million to $70 million on our years, the Company has repurchased over 17.9 millionannual operating costs. Our 2011 natural gas costs averaged shares of stock at a cost of $1.4 billion, and the Companyapproximately $4.65 per mmbtu for the year, while our 2010 ended the year with approximately 9 million shares leftcosts averaged about $5.50 per unit. We currently estimate under the current authorization from the Board ofthe market cost for natural gas in the first quarter of 2012 Directors. The Company entered 2012 with about $1.5will be between $2.50 and $3.00 per mmbtu. We currently billion in cash and short-term investments, which remainshave about 10 percent of full-year 2012 U.S. natural gas at a historically high level for the Company. Weneeds hedged at an average price of about $4.50 per unit completed the previously announced acquisitions offrom hedges placed prior to 2012. While it remains difficult Dyrup and Colpisa in January 2012 to strengthen ourto predict future natural gas prices, in order to reduce the coatings businesses by broadening their product offeringsrisks associated with volatile prices, we will continue to use a and extending their operations into new geographic areas.variety of techniques, which include reducing consumption The sales of these businesses in 2011 were approximatelythrough improved manufacturing processes, switching to $300 million. We anticipate making additionalalternative fuels and hedging. acquisitions in 2012 as part of our strategy for accelerating growth. We will remain disciplined and In an effort to offset the adverse impact of raw deploy our cash in ways that will support future earningsmaterial cost inflation on earnings during 2011, PPG growth, and we are targeting to end 2012 with less thaninitiated higher selling prices in all operating segments. $1 billion in cash and short-term investments.The Company has historically raised selling prices tocounteract the negative earnings impact from inflation. Our current economic outlook for 2012 is for globalHigher pricing in 2011 did not fully counter inflation in growth to continue, but we expect it to be uneven byour coatings segments for the full year, but the offset grew region. Growth in Asia Pacific will be higher than thehigher each quarter of the year. We intend to implement other regions of the world. In contrast, we expect to seeadditional pricing for 2012 to further offset the inflation economic contraction in Europe in the first half of 2012,absorbed in 2011. Commodity Chemicals pricing and the level of uncertainty concerning the credit crisis inimproved during the year, but fell modestly in the fourth that region increases the risk that the economy there willquarter due to lower chlorine demand. weaken further. Considering the expected ongoing global growth coupled with our broad geographic footprint and Our pension and postretirement benefit costs were extensive end-use market exposure, we expect to seeabout $230 million in 2011, a decrease of approximately overall higher demand in 2012 versus 2011. PPG intends$30 million from 2010, which included the benefit of a to remain proactive in managing our businesses to addressplan change in January 2011. These costs are expected to these varied market conditions and level of economicincrease in 2012 by about $35 million to $45 million uncertainty. PPG has in the past initiated cost reductionprimarily due to the reduction in the discount rate actions in response to lower end-market demand andconsistent with the decline of interest rates. During 2011, downward pressure on our margins. These actions havePPG’s cash contributions to our pension plans totaled included strict management of discretionary costs and, in$121 million following cash contributions of $340 and some cases, restructuring actions focused on lowering our$330 million, in 2010 and 2009, respectively, and we fixed cost structure.anticipate 2012 contributions will be in the range of $130million to $150 million. Accounting Standards Adopted in 2011 We expect our ongoing tax rate in 2012 to be in the Note 1, “Summary of Significant Accountingrange of 25 percent to 26 percent, consistent with the Policies,” under Item 8 describes the Company’s recently2011 rate. The reduction we have achieved in 2011 in our adopted accounting pronouncements.ongoing tax rate reflects the impact from tax planning Accounting Standards to be Adopted in Future Yearsstrategies and our sales and earnings growth outside the Note 1, “Summary of Significant AccountingU.S. where corporate income tax rates are lower, Policies,” under Item 8 describes accountingparticularly in Asia Pacific and Europe. A similar benefit pronouncements that have been promulgated prior tofrom these tax planning strategies is expected to impact December 31, 2011 but are not effective until a futurethe 2012 effective tax rate. Because of the differences in date.regional tax rates, a shift in the geographic mix of ourearnings will impact our ongoing tax rate. 2011 PPG ANNUAL REPORT AND FORM 10-K 21
  • 24. Performance in 2010 compared with 2009 Selling, general and administrative expenses increased by $43 million to $2,979 million in 2010 compared to Performance Overview $2,936 million in 2009. Nearly half of the increase was Net sales in 2010 totaled $13,423 million compared due to the effects of inflation, more than 35 percent due to $12,239 million in 2009, an increase of 10 percent. to increased sales volumes and approximately 15 percent Higher volumes contributed 8 percent and higher selling due to the effects of foreign currency. The increase was prices increased sales by 1 percent. The remainder of the offset partially by specific overhead cost reduction sales increase was due to foreign currency and actions. Selling, general and administrative costs as a acquisitions. The higher sales volumes were achieved in percentage of sales were 22.2 percent in 2010, down from all major geographic regions and in all reportable 24.0 percent in 2009 as incremental volume growth was segments, with the exception of Architectural Coatings – achieved without significant increases in selling costs. EMEA, reflecting the partial recovery in demand from the impact of the global recession. Our overall volume growth During the first quarter of 2009, the Company was driven by automotive OEM coatings growth of almost finalized a restructuring plan that was focused on further 30 percent, while continuing weakness in construction reducing PPG’s global cost structure. The Company and maintenance markets reduced architectural coatings recorded a charge of $186 million for the cost of these volumes in Europe, as demand declines remained at about restructuring actions. 5 percent throughout the year. Growth in North America Other charges increased $19 million to $84 million in was driven by improving industrial activity, especially in 2010 from $65 million in 2009 due principally to $10 new automotive builds, aerospace, transportation and million higher environmental remediation expense consumer products. Sales in Europe did increase slightly compared to 2009 and a $6 million antitrust litigation for the year although the rate of recovery in the European settlement charge. Other earnings increased $30 million economy underperformed in comparison with most other to $180 million in 2010 from $150 million in 2009 due major economies. This was driven by recurring concerns primarily to higher equity earnings and royalties, offset over governmental spending and the ability to sustain or partially by the absence of gains on non-operating asset refinance government debt loads which caused many sales that occurred in 2009. major European countries to initiate significant austerity measures. The major emerging economies in which we The effective tax rate on pretax earnings in 2010 was operate, such as Asia and Latin America, maintained late 32.0 percent compared to 31.0 percent in 2009. The 2010 2009 economic momentum and grew throughout 2010, in rate includes expense of $85 million resulting from the many cases surpassing pre-recession economic activity reduction of our previously provided deferred tax asset levels. Industrial growth rates remained high, including related to our liability for retiree medical costs. The mid-teen percentage growth in China. The company’s deferred tax asset needed to be reduced because the U.S. record sales in emerging regions reflects the measurable healthcare legislation enacted in March 2010 included a benefits from PPG’s strategic initiatives to broaden provision that reduced the amount of retiree medical costs end-use markets served and improve our penetration in that will be deductible after December 31, 2012. The 2010 the rapid growth regions. rate also included a $5 million benefit as a result of enacted changes in statutory tax rates outside the U.S. The rate was Cost of sales, exclusive of depreciation and approximately 26 percent on the remaining pretax earnings amortization, increased by $675 million in 2010 to $8,214 in 2010. million compared to $7,539 million in 2009. About 80 percent of the increase was due to volume growth. The 2009 rate includes a tax benefit of $2 million Additionally, about 40 percent of the increase was driven related to audit settlements and a tax benefit of 24.5 by inflation, offset by a decrease of nearly 25 percent in percent related to the business restructuring charge. The manufacturing costs which was a result of the rate was approximately 30 percent on the remaining restructuring and cost savings initiatives taken by the pretax earnings in 2009. Company. Cost of sales as a percentage of sales was 61.2 The decrease in the tax rate on the remaining pretax percent in 2010 compared to 61.6 percent in 2009. The earnings in 2010 is mainly the result of shifts in the impact of inflation on cost of sales in 2010 was offset by geographic mix of pretax earnings to lower taxed regions increases in selling prices and lower manufacturing costs. of the world. The incremental sales volume in 2010 delivered an above average gross margin. These factors combined to produce the reduction in cost of sales as a percentage of sales.22 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 25. Net income (attributable to PPG) and earnings per pricing and lower manufacturing costs. The increase inshare – assuming dilution (attributable to PPG) for 2010 income was led by automotive refinish, protective andand 2009 are summarized below: marine coatings and aerospace businesses as all benefited(Millions, except per share amounts) from partial volume recovery and lower costs as a result ofYear ended December 31, 2010 Net Income our cost savings initiatives. $ EPS Industrial Coatings sales increased $640 million or 21Net income (attributable to PPG) $769 $4.63 percent compared to 2009, to $3,708 million. The salesNet income (attributable to PPG) includes: increase was comprised of 19 percent due to volume, 1Charges related to: percent due to price and 1 percent due to currency Change in U. S. Tax Law (U. S. Patient Protection translation. Volume growth was led by the automotive and Affordable Care Act) $ 85 $0.51 OEM and industrial businesses’ emerging regions, both reflecting the continuing, gradual recovery from the(Millions, except per share amounts)Year ended December 31, 2009 Net Income global recession. Segment income improved 138 percent $ EPS versus 2009 to $378 million in 2010. This increase wasNet income (attributable to PPG) $336 $2.03 primarily due to increased volumes and lower manufacturing and overhead costs, partially offset by theNet income (attributable to PPG) includes: negative impact of inflation net of increases in sellingCharges related to: prices. Earnings returned closer to pre-recession levels as Business restructuring $141 $0.86 this segment was the most impacted segment by the recession.Results of Reportable Business Segments Net sales Segment income (loss) Architectural Coatings – EMEA sales decreased(Millions) 2010 2009 2010 2009 $78 million or 4 percent, to $1,874 million in 2010. ThePerformance Coatings $4,281 $4,095 $661 $551 sales decrease was comprised of 4 percent due to the negative impact of foreign currency translation and a 2Industrial Coatings 3,708 3,068 378 159 percent decline in sales volume, which includes theArchitectural Coatings – positive impact of some small acquisitions, offset by a 2 EMEA 1,874 1,952 113 128 percent increase in selling prices. Volume trendsOptical and Specialty Materials 1,141 1,002 307 235 remained consistent throughout 2010, declining by mid-single-digit percentages, reflecting continued generalCommodity Chemicals 1,434 1,273 189 152 sluggishness in the European construction andGlass 985 849 74 (39) maintenance markets. There were solid price gains made Performance Coatings sales increased $186 million or in response to higher raw materials costs. Segment5 percent, to $4,281 million in 2010. The sales increase income decreased $15 million to $113 million in 2010.was comprised of 3 percent due to price and 2 percent The negative earnings impact of lower sales volumes wasdue to currency. Volumes for the segment were slightly only partially offset by lower overhead costs and thepositive as volume increases in automotive refinish, positive impact of price increases, net of inflation.aerospace and protective and marine coatings were offset Optical and Specialty Materials sales for 2010by a mid-single digit percentage volume decline in the increased $139 million or 14 percent compared to 2009,architectural-Americas and Asia Pacific coatings business. to $1,141 million due almost entirely to increasedThe growth in the automotive refinish business was a volumes in both the optical and silicas businesses. Bothresult of market share gains and recovery from the the optical products and silicas businesses deliveredcustomer destocking in 2009. Aerospace and protective double-digit volume growth in each quarter during 2010.and marine coatings also achieved solid volume growth As a result, segment sales and earnings results for the yeardue to strong growth in both emerging and developed were all-time records. Increased sales penetration wasregions. These businesses both have a sizeable after- achieved in the end-use market for Transitions® lensmarket component, serve late-economic cycle industries products, including about 20 percent growth in emergingand did not experience the same degree of volume decline regions. Volume recovery momentum continued in silicasduring the recession as most of our other businesses. in large part due to the recovery in several silicas end-useSegment income in 2010 increased $110 million to $661 markets, including automotive OEM production. Segmentmillion. The increase in earnings resulted from the impact income increased $72 million to $307 million in 2010of higher sales volume, improved sales margin mix, lower primarily due to the improved volumes, partially offset byoverhead costs and favorable currency. The negative higher selling and advertising costs to support theearnings impact of inflation was offset by favorable increased optical volumes. 2011 PPG ANNUAL REPORT AND FORM 10-K 23
  • 26. Commodity Chemicals sales in 2010 versus the prior It is PPG’s policy to accrue expenses for year increased $161 million or 13 percent, to $1,434 environmental contingencies when it is probable that a million. Sales improved 15 percent due to higher liability has been incurred and the amount of loss can be volumes, driven by the economic recovery in 2010 reasonably estimated. Reserves for environmental partially offset by a 3 percent decline in pricing for the contingencies are exclusive of claims against third parties year. The impact of foreign currency translation was and are generally not discounted. In management’s slightly positive. Segment income increased $37 million to opinion, the Company operates in an environmentally $189 million in 2010 due to the impact of the higher sound manner and the outcome of the Company’s volumes as well as favorable manufacturing and overhead environmental contingencies will not have a material costs resulting from our cost savings initiatives. Factors effect on PPG’s financial position or liquidity; however, partially offsetting the earnings improvement were the any such outcome may be material to the results of impact of the lower pricing and input cost inflation. operations of any particular period in which costs, if any, are recognized. Management anticipates that the Glass sales increased $136 million or 16 percent resolution of the Company’s environmental contingencies compared to 2009 to $985 million in 2010. Sales will occur over an extended period of time. increased 18 percent due to volume growth offset by a 2 percent reduction in pricing. The sales volume As of December 31, 2011 and 2010, PPG had reserves improvement was largely in the fiber glass business for environmental contingencies totaling $226 million resulting from higher demand as a result of the improved and $272 million, respectively, of which $59 million and global economy. The lower flat glass pricing was a result $83 million, respectively, were classified as current of the continued sluggishness in the residential and liabilities. Pretax charges against income for commercial construction markets. Segment income environmental remediation costs in 2011, 2010 and 2009 increased $113 million to $74 million in 2010 due totaled $16 million, $21 million and $11 million, primarily to the impact of the higher fiber glass sales respectively, and are included in “Other charges” in the volumes, lower manufacturing costs as a result of our accompanying consolidated statement of income. Cash restructuring and cost savings initiatives, and higher fiber outlays related to such environmental remediation glass equity earnings, which reflect the overall aggregated $59 million, $34 million and $24 million in improvement in the global demand for electronics, 2011, 2010 and 2009, respectively. The impact of foreign partially offset by the impact of the lower flat glass currency translation decreased the liability by $3 million pricing. in 2011 and by $2 million in 2010. In addition to the amounts currently reserved for See Note 24, “Reportable Business Segment environmental remediation, the Company may be subject Information,” under Item 8 of this Form 10-K for further to loss contingencies related to environmental matters information related to the Company’s operating segments estimated to be as much as $200 million to $400 million. and reportable business segments. Such unreserved losses are reasonably possible but are not Commitments and Contingent Liabilities, including currently considered to be probable of occurrence. About Environmental Matters 50% of this reasonably possible loss relates to New Jersey Chrome. PPG is involved in a number of lawsuits and claims, Our continuing efforts to analyze and assess the both actual and potential, including some that it has environmental issues associated with New Jersey Chrome asserted against others, in which substantial monetary and at the Calcasieu River Estuary located near our Lake damages are sought. See Item 3, “Legal Proceedings” and Charles, La., chlor-alkali plant resulted in a pre-tax charge Note 15, “Commitments and Contingent Liabilities,” of $173 million in the third quarter of 2006 for the under Item 8 of this Form 10-K for a description of estimated costs of remediating these sites. These charges certain of these lawsuits, including a description of the for estimated environmental remediation costs in 2006 proposed asbestos settlement. were significantly higher than PPG’s historical range. As discussed in Item 3 and Note 15, although the Excluding 2006, pretax charges against income for result of any future litigation of such lawsuits and claims environmental remediation have ranged between $10 is inherently unpredictable, management believes that, in million and $35 million per year for the past 15 years. the aggregate, the outcome of all lawsuits and claims Information is being generated from the continuing involving PPG, including asbestos-related claims in the remedial investigation activities related to New Jersey event the proposed asbestos settlement described in Chrome that will be incorporated into a final remedial Note 15 does not become effective, will not have a action work plan to be submitted in mid 2012 which may material effect on PPG’s consolidated financial position or result in an increase to the existing reserve. liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.24 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 27. Management expects cash outlays for environmental Performance Coatings and Architectural Coatings –remediation costs to range from $50 million to $70 EMEA reportable segments and partially offset in ourmillion annually through 2016. It is possible that Industrial Coatings reportable segment. Industrialtechnological, regulatory and enforcement developments, Coatings partially addressed the remaining impact of rawthe results of environmental studies and other factors material inflation with further cost reductions in 2010.could alter our expectations with respect to charges The impact of inflation net of price was positive in theagainst income and future cash outlays. Specifically, the Optical and Specialty Materials reportable segment andlevel of expected cash outlays and charges for negative in the Commodity Chemicals and Glassenvironmental remediation costs are highly dependent reportable segments.upon activity related to New Jersey Chrome, as PPG In 2009, PPG experienced a reduction in our energyexpects to submit additional remedial action work plans and raw material costs, following the significant increasesto the applicable regulatory agencies in 2012. in these costs experienced in 2008 and 2007, which wasImpact of Inflation driven by lower global demand as a result of the recession In 2011, PPG experienced a reduction in the price of and the delayed impact of lower oil prices. This impactnatural gas, its primary energy cost, but experienced a was largely offset by reductions in our selling prices. Thesignificant rise in ethylene, a Commodity Chemical raw impact of inflation net of price was negative in ourmaterial and in coatings raw material prices. Coatings raw Commodity Chemicals and Glass reportable segments andmaterials both organic, primarily petroleum based, and was positive in our three Coatings and the Optical andinorganic materials, generally comprise 70-to-80 percent Specialty Materials reportable segments.of coatings cost of goods sold in most coatings In 2012, we expect the majority of our raw materialformulations and represent PPG’s single largest costs in all of our coatings reportable segments toproduction cost component. In 2011, overall coatings raw stabilize, although the price of some raw materials arematerials costs inflated by approximately 10-to-12 percent expected to remain volatile and to result in inflation whilefor the Company. The largest inflation impacts were from others have declined. The Company is continuing itstitanium dioxide pigments and certain propylene-based aggressive sourcing initiatives to support its continuousresins. This impact was not entirely offset by higher efforts to find the lowest raw material costs. Theseselling prices in our Performance Coatings and initiatives include reformulation of our products usingArchitectural Coatings – EMEA reportable segments. both petroleum-derived and bio-based materials as part ofThere was also a coverage gap in our Industrial Coatings a product renewal strategy, qualifying multiple and localreportable segment even with this segment using product sources of supply, including suppliers from Asia and otherreformulations to attempt to counter this impact. Our lower cost regions of the world, and strategic initiativesCommodity Chemicals and Glass reportable segments with multiple global suppliers to secure and enhancewere able to more than fully offset the impact of inflation PPG’s supply of titanium dioxide and other materials. Wewith price increases, while inflation was not significant expect these efforts, combined with increases in ourfor our Optical and Specialty Materials reportable selling prices, will offset the negative impact of inflationsegment. on our coatings businesses in 2012 and recover margin In 2010, PPG experienced a reduction in its primary lost from inflation absorbed in 2011. It is expected,energy costs but a steady increase in its coatings raw however, that our selling prices may not be able to covermaterial costs, most notably in the second half of the year. raw material increases in certain of our segments. TheThis was driven by higher global demand as a result of the Company will look to other cost control measures togradual recovery in the global economy and tightness of attempt to manage this negative impact on thesesupply as suppliers have not increased their capacities. reportable segments. We will also continue our efforts toThis impact was offset by higher selling prices in our manage our energy costs in 2012. 2011 PPG ANNUAL REPORT AND FORM 10-K 25
  • 28. Liquidity and Capital Resources of existing businesses and environmental control projects During the past three years, we had sufficient was $390 million, $307 million and $239 million in 2011, financial resources to meet our operating requirements, to 2010, and 2009, respectively, and is expected to be in the fund our capital spending, share repurchases and pension range of $450-$550 million during 2012. Capital plans and to pay increasing dividends to our shareholders. spending, excluding acquisitions, as a percentage of sales was 2.6%, 2.3% and 2.0% in 2011, 2010 and 2009, Cash from operating activities was $1,436 million, respectively. Capital spending related to business $1,310 million, and $1,345 million in 2011, 2010, and acquisitions amounted to $56 million, $34 million, and 2009, respectively. Higher earnings increased cash from $26 million in 2011, 2010 and 2009, respectively. We operations in 2011 compared to 2010, but the increase continue to evaluate acquisition opportunities and expect was reduced by cash used to fund an increase in working to use cash in 2012 to fund small to mid-sized capital of $212 million driven by our sales growth in acquisitions, as part of a balanced deployment of our cash 2011. Cash provided by working capital was greater in to support growth in earnings. In January 2012, the 2009 than 2010 and that decline was more than offset by Company closed the previously announced acquisitions of the cash from higher 2010 earnings. Colpisa, a Colombian producer of automotive OEM and Operating Working Capital is a subset of total refinish coatings, and Dyrup, a European architectural working capital and represents (1) trade receivables-net of coatings company. The cost of these acquisitions, the allowance for doubtful accounts, plus (2) inventories including assumed debt, was $193 million. on a first-in, first-out (“FIFO”) basis, less (3) trade Dividends paid to shareholders totaled $355 million, creditors’ liabilities. See Note 3, “Working Capital Detail” $360 million and $353 million in 2011, 2010 and 2009, under Item 8 of this Form 10-K for further information respectively. PPG has paid uninterrupted annual related to the components of the Company’s Operating dividends since 1899, and 2011 marked the 40th Working Capital. We believe Operating Working Capital consecutive year of increased annual dividend payments represents the key components of working capital under to shareholders. the operating control of our businesses. Operating Working Capital at December 31, 2011 and 2010 was We did not have a mandatory contribution to our $2.7 billion and $2.6 billion, respectively. A key metric U.S. defined benefit pension plans in 2011; however, we we use to measure our working capital management is made voluntary contributions to these plans in 2011 Operating Working Capital as a percentage of sales totaling $50 million. In 2010 and 2009, we made (fourth quarter sales annualized). voluntary contributions to our U.S. defined benefit (Millions) 2011 2010 pension plans of $250 and $360 million (of which $100 million was made in PPG stock), respectively. We expect Operating Working Capital $2,739 $2,595 to make voluntary contributions to our U.S. defined Operating Working Capital as % of Sales 19.5% 19.2% benefit pension plans in 2012 of up to $60 million. Contributions were made to our non-U.S. defined benefit The change in operating working capital elements, pension plans of $71 million, $87 million and $90 million excluding the impact of currency and acquisitions, was an (of which approximately $20 million was made in PPG increase of $195 million during the year ended stock) for 2011, 2010 and 2009, respectively, some of December 31, 2011. This increase was the net result of an which were required by local funding requirements. We increase in receivables from customers associated with the expect to make mandatory contributions to our non-U.S. 2011 increase in sales and an increase in FIFO inventory plans in 2012 of approximately $90 million. slightly offset by an increase in trade creditors’ liabilities. Trade receivables from customers, net, as a percentage of The Company’s share repurchase activity in 2011, fourth quarter sales, annualized, for 2011 was 2010 and 2009 was 10.2 million shares at a cost of $858 17.9 percent, down slightly from 18.1 percent for 2010. million, 8.1 million shares at a cost of $586 million and Days sales outstanding was 66 days in 2011, level with 1.5 million shares at a cost of $59 million, respectively. 2010. Inventories on a FIFO basis as a percentage of We expect to make share repurchases in 2012 as part of fourth quarter sales, annualized, for 2011 was 13.1 our cash deployment focused on earnings growth. The percent level with 2010. Inventory turnover was 5.0 times amount of spending will depend on the level of in 2011 and 4.6 times in 2010. acquisition spending and other uses of cash, but we currently expect to spend in the range of $250 million to Total capital spending, including acquisitions, was $500 million on share repurchases in 2012. We can $446 million, $341 million and $265 million in 2011, repurchase about 9 million shares under the current 2010, and 2009, respectively. Spending related to authorization from the Board of Directors. modernization and productivity improvements, expansion26 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 29. In June 2011, the Company repaid a $400 million time or will be repatriated when it is tax effective to do so.three year unsecured term loan, which had a scheduled It is not practicable to determine the deferred tax liabilitymaturity date of June 2012. There was no prepayment on these undistributed earnings.penalty. This $400 million three year unsecured loan was We continue to believe that our cash on hand, cashentered into in June 2009 with a variable interest rate from operations and the Company’s available debtbased on a spread over the London InterBank Offered capacity will continue to be sufficient to fund ourRate (“LIBOR”). This term loan was repaid using a operating activities, capital spending, includingportion of the proceeds from the $1 billion debt we issued acquisitions, dividend payments, debt service, amountsin November 2010. due under the proposed asbestos settlement, share On November 12, 2010, PPG completed a public repurchases, contributions to pension plans, and PPG’soffering of $250 million in aggregate principal amount of significant contractual obligations. These significantits 1.900% Notes due 2016, $500 million in aggregate contractual obligations, along with amounts due underprincipal amount of its 3.600% Notes due 2020 and $250 the proposed asbestos settlement are presented in themillion in aggregate principal amount of its 5.500% Notes following table.due 2040. These notes were offered by the Company Obligations Due In:pursuant to its existing shelf registration statement. The 2013- 2015-proceeds of this offering were $983 million (net of (Millions) Total 2012 2014 2016 Thereafterdiscount and issuance costs). We used the proceeds to Contractual Obligations Long-term debt $3,617 $ 73 $ 611 $ 808 $2,125repay $400 million in term debt and to contribute to Short-term debt 33 33 — — —employee pension plans and we intend to use theremainder of the proceeds to fund certain asbestos claims Capital lease obligations 32 2 4 4 22and for other general corporate purposes of the Company. Operating leases 643 162 221 129 131 In August 2010, PPG entered into a three-year credit Interest payments(1) 1,775 195 323 286 971agreement with several banks and financial institutions Pension contributions(2) 150 150 — — —(the “Credit Agreement”). The Credit Agreement provides Unconditional purchasefor a $1.2 billion unsecured revolving credit facility. In commitments 742 253 211 78 200connection with entering into this Credit Agreement, the Total $6,992 $868 $1,370 $1,305 $3,449Company terminated its €650 million and its $1 billion Asbestos Settlement(3)revolving credit facilities that were each set to expire in Aggregate cash2011. There were no outstanding amounts due under payments $ 825 $462 $ 23 $ 21 $ 319either revolving facility at the time of their termination. PPG stock and other 131 131 — — —The Company has the ability to increase the size of the Total $ 956 $593 $ 23 $ 21 $ 319Credit Agreement by up to an additional $300 million, (1) Includes interest on all outstanding debt. Interest for variable-rate debtsubject to the receipt of lender commitments and other instruments is based on effective rates at December 31, 2011. Interestconditions. The Credit Agreement will terminate and all for fixed-rate debt instruments have been adjusted for the impact ofamounts outstanding will be due and payable on interest rate swaps using the effective rate at December 31, 2011. (2) Includes the estimated pension contribution for 2012 only, as PPG isAugust 5, 2013. There were no amounts outstanding unable to estimate the pension contributions beyond 2012.under the credit agreement at December 31, 2011; (3) We have recorded an obligation equal to the net present value of thehowever, the available borrowing rate on a one month, aggregate cash payments, along with the PPG stock and other assets to be contributed to a trust under the proposed asbestos settlement.U.S. dollar denominated borrowing would have been However, PPG has no obligation to pay any amounts under this1.05 percent. settlement until the Funding Effective Date, as more fully discussed in Note 15, “Commitments and Contingent Liabilities,” under Item 8 of PPG entered into $400 million of forward starting this Form 10-K.swaps in 2009 and 2010, which are set to expire during2012. The Company plans to issue 10 year debt in The unconditional purchase commitments areconnection with the expiration of these instruments and principally take-or-pay obligations related to the purchaseintends to use the proceeds from this issuance in 2013 to of certain materials, including industrial gases, naturalrepay the $600 million in notes due in 2013. gas, coal and electricity, consistent with customary industry practice. These amounts also include PPG’s The ratio of total debt, including capital leases, to commitment to purchase electricity and steam from ourtotal debt and equity was 53% at December 31, 2011 and RS Cogen joint venture discussed in Note 5,2010. “Investments,” under Item 8 of this Form 10-K. No deferred U.S. income taxes have been provided on See Note 8, “Debt and Bank Credit Agreements andundistributed earnings of non-U.S. subsidiaries, which Leases,” under Item 8 of this Form 10-K for detailsamounted to $2,920 million as of December 31, 2011 and regarding the use and availability of committed and$2,465 million as of December 31, 2010. These earnings uncommitted lines of credit, letters of credit, guaranteesare considered to be reinvested for an indefinite period of and debt covenants. 2011 PPG ANNUAL REPORT AND FORM 10-K 27
  • 30. In addition to the amounts available under the lines Postretirement Benefits,” under Item 8 for information on of credit, the Company has an automatic shelf registration these plans and the assumptions used. statement on file with the SEC pursuant to which it may The discount rate used in accounting for pensions issue, offer and sell from time to time on a continuous or and other postretirement benefits is determined by delayed basis any combination of securities in one or reference to a current yield curve and by considering the more offerings. timing and amount of projected future benefit payments. Off-Balance Sheet Arrangements The discount rate assumption at December 31, 2011 and The Company’s off-balance sheet arrangements for 2012 is 4.50% for our U.S. defined benefit pension and include the operating leases and unconditional purchase other postretirement benefit plans. A change in the commitments disclosed in the “Liquidity and Capital discount rate of 75 basis points, with all other Resources” section in the contractual obligations table as assumptions held constant, would impact 2012 net well as letters of credit and guarantees as discussed in periodic benefit expense for our defined benefit pension Note 8, “Debt and Bank Credit Agreements and Leases,” and other postretirement benefit plans by approximately under Item 8 of this Form 10-K. $10 million and $8 million, respectively. Critical Accounting Estimates The expected return on plan assets assumption used Management has evaluated the accounting policies in accounting for our pension plans is determined by used in the preparation of the financial statements and evaluating the mix of investments that comprise plan related notes presented under Item 8 of this Form 10-K assets and external forecasts of future long-term and believes those policies to be reasonable and investment returns. For 2011, the return on plan assets appropriate. We believe that the most critical accounting assumption for our U.S. defined benefit pension plans was estimates made in the preparation of our financial 8.0 percent. This assumption will be lowered to 7.5 statements are those related to accounting for percent for 2012. A change in the rate of return of 75 contingencies, under which we accrue a loss when it is basis points, with other assumptions held constant, would probable that a liability has been incurred and the amount impact 2012 net periodic pension expense by can be reasonably estimated, and to accounting for approximately $22 million. pensions, other postretirement benefits, goodwill and As discussed in Note 1, “Summary of Significant other identifiable intangible assets with indefinite lives Accounting Policies,” under Item 8 of this Form 10-K, the because of the importance of management judgment in Company tests goodwill and identifiable intangible assets making the estimates necessary to apply these policies. with indefinite lives for impairment at least annually by Contingencies, by their nature, relate to uncertainties comparing the fair value of the reporting units to their that require management to exercise judgment both in carrying values. Fair values are estimated using assessing the likelihood that a liability has been incurred discounted cash flow methodologies that are based on as well as in estimating the amount of potential loss. The projections of the amounts and timing of future revenues most important contingencies impacting our financial and cash flows. Based on this testing, none of our statements are those related to the collectability of goodwill or identifiable intangible assets with indefinite accounts receivable, to environmental remediation, to lives was impaired as of December 31, 2011. pending, impending or overtly threatened litigation As part of our ongoing financial reporting process, a against the Company and to the resolution of matters collaborative effort is undertaken involving PPG related to open tax years. For more information on these managers with functional responsibility for financial, matters, see Note 3, “Working Capital Detail,” Note 13, credit, environmental, legal, tax and benefit matters. The “Income Taxes” and Note 15, “Commitments and results of these efforts provide management with the Contingent Liabilities” under Item 8 of this Form 10-K. necessary information on which to base their judgments Accounting for pensions and other postretirement on these contingencies and to develop the estimates and benefits involves estimating the cost of benefits to be assumptions used to prepare the financial statements. provided well into the future and attributing that cost We believe that the amounts recorded in the financial over the time period each employee works. To accomplish statements under Item 8 of this Form 10-K related to this, extensive use is made of assumptions about inflation, these contingencies, pensions, other postretirement investment returns, mortality, turnover, medical costs and benefits, goodwill and other identifiable intangible assets discount rates. The Company has established a process by with indefinite lives are based on the best estimates and which management reviews and selects these assumptions judgments of the appropriate PPG management, although annually. See Note 14, “Pensions and Other actual outcomes could differ from our estimates.28 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 31. Currency You can identify forward-looking statements by the From December 31, 2010 to December 31, 2011, the fact that they do not relate strictly to current or historicU.S. dollar strengthened against the currencies of most of facts. Forward-looking statements are identified by thethe countries in which PPG operates, most notably against use of the words “aim,” “believe,” “expect,” “anticipate,”the Euro, the Brazilian real, and the Polish zloty. A $188 “intend,” “estimate,” “project,” “outlook,” “forecast” andmillion decrease in PPG consolidated net assets and other expressions that indicate future events and trends.shareholders equity resulted from translating PPG’s Any forward-looking statement speaks only as of the dateforeign denominated net assets to U.S. dollars at on which such statement is made, and the CompanyDecember 31, 2011, compared to December 31, 2010. undertakes no obligation to update any forward lookingHowever, during much of 2011, the U.S. dollar was statement, whether as a result of new information, futureweaker against the currencies of many countries in which events or otherwise, except as otherwise required byPPG operates than it was in 2010, which had a favorable applicable law. You are advised, however, to consult anyimpact on 2011 pretax earnings of approximately $40 further disclosures we make on related subjects in ourmillion from the translation of these foreign earnings into reports to the Securities and Exchange Commission. Also,U.S. dollars. note the following cautionary statements. From December 31, 2009 to December 31, 2010, the Many factors could cause actual results to differU.S. dollar strengthened against the Euro, the Polish materially from the Company’s forward-lookingzloty, and the British pound sterling while at the same statements. Such factors include global economictime it weakened against the Canadian and Australian conditions, increasing price and product competition bydollar, the Chinese yuan, the South Korean won, and foreign and domestic competitors, fluctuations in cost andthe Brazilian real, which had a nearly offsetting effect on availability of raw materials, the ability to maintainthe translation of the net assets of PPG’s operations favorable supplier relationships and arrangements,denominated in non-U.S. currencies to the U.S. dollar. A difficulties in integrating acquired businesses and$13 million decrease resulted from translating PPG’s achieving expected synergies therefrom, economic andforeign denominated net assets at December 31, 2010, political conditions in international markets, the ability tocompared to December 31, 2009. The impact of penetrate existing, developing and emerging foreign andtranslating foreign pretax earnings into U.S. dollars was domestic markets, foreign exchange rates and fluctuationsinsignificant. in such rates, fluctuations in tax rates, the impact of future legislation, the impact of environmental From December 31, 2008 to December 31, 2009, the regulations, unexpected business disruptions and theU.S. dollar weakened against the currencies of most of the unpredictability of existing and possible future litigation,countries in which PPG operated, most notably against including litigation that could result if the proposedthe Euro, the Canadian dollar, the British pound sterling, asbestos settlement does not become effective. However, itthe Polish zloty, the Brazilian real, the South Korean won is not possible to predict or identify all such factors.and the Australian dollar. As a result, the effects of Consequently, while the list of factors presented here andtranslating the net assets of PPG’s operations denominated under Item 1A is considered representative, no such listin non-U.S. currencies to the U.S. dollar increased should be considered to be a complete statement of allconsolidated net assets at December 31, 2009 by $173 potential risks and uncertainties. Unlisted factors maymillion compared to December 31, 2008. During much of present significant additional obstacles to the realizationthe year, the U.S. dollar was stronger against the of forward-looking statements.currencies of many countries in which PPG operated thanit was in 2008, which had an unfavorable impact on 2009 Consequences of material differences in the resultspretax earnings of $29 million from the translation of compared with those anticipated in the forward-lookingthese foreign earnings into U.S. dollars. statements could include, among other things, business disruption, operational problems, financial loss, legalForward-Looking Statements liability to third parties, other factors set forth in Item 1A The Private Securities Litigation Reform Act of 1995 of this Form 10-K and similar risks, any of which couldprovides a safe harbor for forward-looking statements have a material adverse effect on the Company’smade by or on behalf of the Company. Management’s consolidated financial condition, results of operations orDiscussion and Analysis and other sections of this Annual liquidity.Report contain forward-looking statements that reflect theCompany’s current views with respect to future eventsand financial performance. 2011 PPG ANNUAL REPORT AND FORM 10-K 29
  • 32. Item 7A. Quantitative and Qualitative Disclosures designated these swaps as hedges of its net investment About Market Risk in the acquired SigmaKalon businesses and, as a result, PPG is exposed to market risks related to changes in mark to fair value adjustments of the swaps have been and foreign currency exchange rates, interest rates, and will be recorded as a component of other comprehensive natural gas prices and to changes in PPG’s stock price. income. As of December 31, 2011 and 2010, the aggregate The Company may enter into derivative financial fair value of these swaps was a liability of $120 million instrument transactions in order to manage or reduce and $163 million, respectively. A 10 percent increase in these market risks. A detailed description of these the value of the euro to the U.S. dollar would have had an exposures and the Company’s risk management policies unfavorable effect on the fair value of these swap are provided in Note 11, “Derivative Financial contracts and increased the liability by $153 million and Instruments and Hedge Activities,” under Item 8 of this $158 million at December 31, 2011 and 2010, Form 10-K. respectively. The following disclosures summarize PPG’s exposure PPG had non-U.S. dollar denominated debt to market risks and information regarding the use of and outstanding of $441 million as of December 31, 2011 and fair value of derivatives employed to manage its exposure $447 million as of December 31, 2010. A weakening of to such risks. Quantitative sensitivity analyses have been the U.S. dollar by 10 percent against European currencies provided to reflect how reasonably possible, unfavorable and by 20 percent against Asian and South American changes in market rates can impact PPG’s consolidated currencies would have resulted in unrealized translation results of operations, cash flows and financial position. losses of approximately $50 million and $52 million as of December 31, 2011 and 2010, respectively. Foreign currency forward and option contracts outstanding during 2011 and 2010 were used to hedge Interest rate swaps are used to manage a portion of PPG’s exposure to foreign currency transaction risk. The PPG’s interest rate risk. As of December 31, 2011 and fair value of these contracts as of December 31, 2011 and 2010 the notional value of outstanding interest rate swaps 2010 were liabilities of $1 million and assets of $2 totaled $445 million and $450 million, respectively. The million, respectively. The potential reduction in PPG’s fair value of the interest rate swaps was an asset of $26 earnings resulting from the impact of adverse changes in million and $20 million as of December 31, 2011 and exchange rates on the fair value of its outstanding foreign 2010, respectively. The fair value of these swaps would currency hedge contracts of 10 percent for European have changed unfavorably by $1 million as of currencies and 20 percent for Asian and South American December 31, 2011 and 2010, respectively, if variable currencies for the years ended December 31, 2011 and interest rates increased by 10 percent. A 10 percent 2010 would have been $23 million and $22 million, increase in interest rates in the U.S., Canada, Mexico and respectively. Europe and a 20 percent increase in interest rates in Asia and South America would have affected PPG’s variable PPG entered into nine U.S. dollar to euro cross rate debt obligations by increasing interest expense currency swap contracts with a total notional amount of approximately $1 million as of December 31, 2011 and $1.16 billion, of which $600 million were to settle on December 31, 2010, respectively. Further, a 10 percent March 15, 2013 and $560 million were to settle on reduction in interest rates would have increased the March 15, 2018. Another contract, with a notional present value of the Company’s fixed rate debt by amount of $140 million and a settlement date of approximately $90 million and $115 million as of March 15, 2018 was converted to cash during the first December 31, 2011 and 2010, respectively; however, such quarter of 2010. Accordingly, on settlement of the changes would not have had an effect on PPG’s annual contracts, PPG will receive $1.16 billion and pay euros to earnings or cash flows. the counterparties to the contracts. The Company has30 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 33. The Company entered into forward starting swaps in prices of natural gas. A 10 percent reduction in the price2009 and in the second quarter of 2010 to effectively of natural gas would have had an unfavorable effect onlock-in a fixed interest rate for future debt refinancings the fair value of these contracts by increasing the liabilitywith an anticipated term of ten years based on a the ten by $2 million and $5 million at December 31, 2011 andyear swap rate, to which will be added a corporate spread. 2010, respectively.The notional amount of these swaps totaled $400 million An equity forward arrangement was entered into toas of December 31, 2011 and 2010, respectively. The fair hedge the Company’s exposure to changes in fair value ofvalue of these swaps was a liability of $92 million as of its future obligation to contribute PPG stock into anDecember 31, 2011 and $21 million as of December 31, asbestos settlement trust (see Note 11 “Derivative2010. A 10 percent decline in interest rates would Financial Instruments and Hedge Activities” and Note 15,unfavorably affect the fair value of these swaps by $9 “Commitments and Contingent Liabilities,” under Item 8million and $14 million as of December 31, 2011 and of this Form 10-K). The fair value of this instrument as of2010, respectively. December 31, 2011 and 2010 was an asset of $56 million The fair value of natural gas swap contracts in place and $55 million, respectively. A 10 percent decrease inas of December 31, 2011 and 2010 was a liability of $9 PPG’s stock price would have had an unfavorable effectmillion and $31 million, respectively. These contracts on the fair value of this instrument of $12 million atwere entered into to reduce PPG’s exposure to higher December 31, 2011 and 2010, respectively. 2011 PPG ANNUAL REPORT AND FORM 10-K 31
  • 34. Item 8. Financial Statements and Supplementary Data Internal Controls – Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of PPG Industries, Inc. We have audited the internal control over financial reporting of PPG Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2011 of the Company and our report dated February 16, 2012 expressed an unqualified opinion on those financial statements and financial statement schedule. Deloitte & Touche LLP Pittsburgh, Pennsylvania February 16, 201232 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 35. Management ReportResponsibility for Preparation of the Financial Statements and Establishing and Maintaining Adequate Internal Control OverFinancial Reporting We are responsible for the preparation of the financial statements included in this Annual Report. The financial statements wereprepared in accordance with accounting principles generally accepted in the United States of America and include amounts that arebased on the best estimates and judgments of management. We are also responsible for establishing and maintaining adequate internal control over financial reporting as defined inRules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. All internal control systems, no matter howwell designed, have inherent limitations. Therefore, a system of internal control over financial reporting can provide only reasonableassurance and may not prevent or detect misstatements. In addition, because of changing conditions, there is risk in projecting anyevaluation of internal controls to future periods. We conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31,2011. In making this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) in Internal Control - Integrated Framework. Our evaluation included reviewing the documentation of ourcontrols, evaluating the design effectiveness of our controls and testing their operating effectiveness. Based on this evaluation webelieve that, as of December 31, 2011, the Company’s internal controls over financial reporting were effective. Deloitte & Touche LLP, an independent registered public accounting firm, has issued their report, included on page 32 of thisForm 10-K, regarding the Company’s internal control over financial reporting.Charles E. Bunch David B. NavikasChairman of the Board Senior Vice President, Finance andand Chief Executive Officer Chief Financial OfficerFebruary 16, 2012 February 16, 2012Consolidated Financial Statements – Report of Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders of PPG Industries, Inc. We have audited the accompanying consolidated balance sheets of PPG Industries, Inc. and subsidiaries (the “Company”) as ofDecember 31, 2011 and 2010, and the related consolidated statements of income, shareholders’ equity, comprehensive income, andcash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statementschedule listed in the Index at Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on the financial statements and the financial statementschedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PPGIndustries, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each ofthe three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the UnitedStates of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report datedFebruary 16, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.Deloitte & Touche LLPPittsburgh, PennsylvaniaFebruary 16, 2012 2011 PPG ANNUAL REPORT AND FORM 10-K 33
  • 36. Consolidated Statement of Income For the Year (Millions, except per share amounts) 2011 2010 2009 Net sales $14,885 $13,423 $12,239 Cost of sales, exclusive of depreciation and amortization 9,081 8,214 7,539 Selling, general and administrative 3,234 2,979 2,936 Depreciation 346 346 354 Amortization (See Note 6) 121 124 126 Research and development – net (See Note 22) 430 394 388 Interest expense 210 189 193 Interest income (42) (34) (28) Asbestos settlement – net (See Notes 11 and 15) 12 12 13 Business restructuring (See Note 7) — — 186 Other charges (See Note 15) 73 84 65 Other earnings (See Note 19) (177) (180) (150) Income before income taxes 1,597 1,295 617 Income tax expense (See Note 13) 385 415 191 Net income attributable to the controlling and noncontrolling interests 1,212 880 426 Less: net income attributable to noncontrolling interests 117 111 90 Net income (attributable to PPG) $ 1,095 $ 769 $ 336 Earnings per common share (See Note 12) Net income (attributable to PPG) $ 6.96 $ 4.67 $ 2.04 Earnings per common share – assuming dilution (See Note 12) Net Income (attributable to PPG) $ 6.87 $ 4.63 $ 2.03 The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.34 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 37. Consolidated Balance Sheet December 31(Millions) 2011 2010AssetsCurrent assets Cash and cash equivalents $ 1,457 $ 1,341 Short-term investments (See Note 9) 25 637 Receivables (See Note 3) 2,830 2,778 Inventories (See Note 3) 1,607 1,573 Deferred income taxes (See Note 13) 473 451 Other 302 278 Total current assets 6,694 7,058Property (See Note 4) 8,614 8,415Less accumulated depreciation 5,893 5,729 Property – net 2,721 2,686Investments (See Note 5) 387 550Goodwill (See Note 6) 2,660 2,719Identifiable intangible assets – net (See Note 6) 1,125 1,268Other assets (See Note 13) 795 694 Total $14,382 $14,975Liabilities and Shareholders’ EquityCurrent liabilities Short-term debt and current portion of long-term debt (See Note 8) $ 108 $ 28 Asbestos settlement (See Note 15) 593 578 Accounts payable and accrued liabilities (See Note 3) 2,996 3,002 Business restructuring (See Note 7) 5 17 Total current liabilities 3,702 3,625Long-term debt (See Note 8) 3,574 4,043Asbestos settlement (See Note 15) 241 243Deferred income taxes (See Note 13) 272 293Accrued pensions (See Note 14) 968 819Other postretirement benefits (See Note 14) 1,307 1,151Other liabilities 872 968 Total liabilities 10,936 11,142Commitments and contingent liabilities (See Note 15)Shareholders’ equity (See Note 16) Common stock 484 484 Additional paid-in capital 783 725 Retained earnings 9,288 8,548 Treasury stock, at cost (5,506) (4,708) Accumulated other comprehensive loss (See Note 17) (1,800) (1,411) Total PPG shareholders’ equity 3,249 3,638 Noncontrolling interests 197 195 Total shareholders’ equity 3,446 3,833 Total $14,382 $14,975Shares outstanding were 151,888,780 and 160,381,815 as of December 31, 2011 and 2010, respectively.The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement. 2011 PPG ANNUAL REPORT AND FORM 10-K 35
  • 38. Consolidated Statement of Shareholders’ Equity Accumulated Other Additional Comprehensive Non- Common Paid-In Retained Treasury (Loss) Income Total controlling (Millions) Stock Capital Earnings Stock (See Note 17) PPG Interests Total Balance, January 1, 2009 $484 $580 $8,156 $(4,259) $(1,628) $3,333 $156 $3,489 Net income attributable to the controlling and noncontrolling interests — — 336 — — 336 90 426 Other comprehensive income, net of tax — — — — 367 367 — 367 Cash dividends — — (353) — — (353) — (353) Purchase of treasury stock — — — (59) — (59) — (59) Issuance of treasury stock — 50 — 100 — 150 — 150 Stock-based compensation activity — 6 — — — 6 — 6 Equity forward arrangement — (27) — — — (27) — (27) Dividends paid on subsidiary common stock to noncontrolling interests — — — — — — (77) (77) Balance, December 31, 2009 $484 $609 $8,139 $(4,218) $(1,261) $3,753 $169 $3,922 Net income attributable to the controlling and noncontrolling interests — — 769 — — 769 111 880 Other comprehensive (loss) income, net of tax — — — — (150) (150) 2 (148) Cash dividends — — (360) — — (360) — (360) Purchase of treasury stock — — — (521) — (521) — (521) Issuance of treasury stock — 77 — 96 — 173 — 173 Stock-based compensation activity — 12 — — — 12 — 12 Equity forward arrangement — 27 — (65) — (38) — (38) Dividends paid on subsidiary common stock to noncontrolling interests — — — — — — (87) (87) Balance, December 31, 2010 $484 $725 $8,548 $(4,708) $(1,411) $3,638 $195 $3,833 Net income attributable to the controlling and noncontrolling interests — — 1,095 — — 1,095 117 1,212 Other comprehensive loss, net of tax — — — — (389) (389) (9) (398) Cash dividends — — (355) — — (355) — (355) Purchase of treasury stock — — — (858) — (858) — (858) Issuance of treasury stock — 47 — 60 — 107 — 107 Stock-based compensation activity — 11 — — — 11 — 11 Dividends paid on subsidiary common stock to noncontrolling interests — — — — — — (106) (106) Balance, December 31, 2011 $484 $783 $9,288 $(5,506) $(1,800) $3,249 $197 $3,446 Consolidated Statement of Comprehensive Income For the Year (Millions) 2011 2010 2009 Net income attributable to the controlling and noncontrolling interests $ 1,212 $ 880 $426 Other comprehensive (loss) income, net of tax (See Note 17) Unrealized currency translation adjustment (197) (11) 173 Defined benefit pension and other postretirement benefit adjustments (See Note 14) (169) (136) 169 Unrealized gains on marketable equity securities — 1 — Net change – derivatives (See Note 11) (32) (2) 25 Other comprehensive (loss) / income, net of tax (398) (148) 367 Total comprehensive income $ 814 $ 732 $793 Less: amounts attributable to noncontrolling interests: Net income (117) (111) (90) Unrealized currency translation adjustment 9 (2) — Comprehensive income attributable to PPG $ 706 $ 619 $703 The accompanying notes to the consolidated financial statements are an integral part of these consolidated statements.36 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 39. Consolidated Statement of Cash Flows For the Year(Millions) 2011 2010 2009Operating activitiesNet income attributable to the controlling and noncontrolling interests $ 1,212 $ 880 $ 426Adjustments to reconcile to cash from operations: Depreciation and amortization 467 470 480 Pension expense 131 161 218 Charge related to change in U.S. tax law (See Note 13) — 85 — Equity affiliate (earnings) loss net of dividends (18) (39) 17 Asbestos settlement, net of tax 7 7 8 Business restructuring — — 186 Cash contributions to pension plans (121) (340) (330) Restructuring cash spending (18) (103) (142)Change in certain asset and liability accounts: (Increase)/decrease in receivables (129) (188) 345 (Increase)/decrease in inventories (73) (34) 232 (Increase)/decrease in other current assets (32) 16 32 Increase/(decrease) in accounts payable and accrued liabilities 22 306 (117) (Increase)/decrease in noncurrent assets (3) (9) 62 (Decrease)/increase in noncurrent liabilities (12) (22) 5 Change in accrued tax and interest accounts 39 170 (82) Other (36) (50) 5 Cash from operating activities 1,436 1,310 1,345Investing activitiesCapital spending: Additions to property and investments (390) (307) (239) Business acquisitions, net of cash balances acquired (See Note 2) (56) (34) (26)Deposit of cash into escrow (See Note 2) (16) (7) —Release of cash held in escrow (See Note 2) — 1 22Proceeds from maturity of short-term investments 749 — —Purchase of short-term investments (125) (624) —Payments on cross currency swap contracts (See Note 11) (10) (9) (3)Proceeds from termination of cross currency swap contracts (See Note 11) — 5 —Collection of notes receivable, equity affiliate (See Note 5) 90 — —Return of capital, equity affiliate (See Note 5) 78 — —Reductions of other property and investments 33 26 43 Cash from/(used for) investing activities 353 (949) (203)Financing activitiesDebt: Proceeds from issuance of notes (net of discount and issuance costs) (See Note 8) — 983 — Net change in borrowings with maturities of three months or less 9 (23) (431) Proceeds from term loan (See Note 8) — — 400 Repayment of term loan (See Note 8) (400) — — Proceeds from other short-term debt 4 8 1 Repayment of other short-term debt — (225) (517) Repayment of 7.05% Notes due 2009 (See Note 8) — — (116) Proceeds from other long-term debt 3 7 29 Repayment of other long-term debt (7) (14) (12) Proceeds from termination of interest rate swaps 19 — — Net change in cash related to debt transactions (372) 736 (646)Other financing activities: Purchase of treasury stock (858) (586) (59) Issuance of treasury stock 81 146 12 Dividends paid on subsidiary common stock to noncontrolling interests (106) (87) (77) Dividends paid (355) (360) (353) Other (22) 47 — Cash used for financing activities (1,632) (104) (1,123)Effect of currency exchange rate changes on cash and cash equivalents (41) 27 17Net increase in cash and cash equivalents 116 284 36Cash and cash equivalents, beginning of year 1,341 1,057 1,021Cash and cash equivalents, end of year $ 1,457 $1,341 $ 1,057The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement. 2011 PPG ANNUAL REPORT AND FORM 10-K 37
  • 40. Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies warehouses, terminals and other distribution facilities. Certain of these costs may be included in cost of sales by Principles of Consolidation other companies, resulting in a lack of comparability with The accompanying consolidated financial statements other companies. include the accounts of PPG Industries, Inc. (“PPG” or the “Company”) and all subsidiaries, both U.S. and Legal Costs non-U.S., that it controls. PPG owns more than 50% of Legal costs are expensed as incurred. the voting stock of the subsidiaries that it controls. For Foreign Currency Translation those consolidated subsidiaries in which the Company’s For all significant non-U.S. operations, their ownership is less than 100 percent, the outside functional currency is their local currency. Assets and shareholders’ interests are shown as noncontrolling liabilities of those operations are translated into U.S. interests. Investments in companies in which PPG owns dollars using year-end exchange rates; income and 20% to 50% of the voting stock and has the ability to expenses are translated using the average exchange rates exercise significant influence over operating and financial for the reporting period. Unrealized currency translation policies of the investee are accounted for using the equity adjustments are deferred in accumulated other method of accounting. As a result, PPG’s share of the comprehensive loss, a separate component of earnings or losses of such equity affiliates is included in shareholders’ equity. the accompanying consolidated statement of income and PPG’s share of these companies’ shareholders’ equity is Cash Equivalents included in Investments in the accompanying Cash equivalents are highly liquid investments consolidated balance sheet. Transactions between PPG (valued at cost, which approximates fair value) acquired and its subsidiaries are eliminated in consolidation. with an original maturity of three months or less. Use of Estimates in the Preparation of Financial Statements Short-term Investments The preparation of financial statements in conformity Short-term investments are highly liquid, high credit with U.S. generally accepted accounting principles requires quality investments (valued at cost plus accrued interest) management to make estimates and assumptions that affect that have stated maturities of greater than three months to the reported amounts of assets and liabilities and the one year. The purchases and sales of these investments are disclosure of contingent assets and liabilities at the date of classified as investing activities in the consolidated the financial statements, as well as the reported amounts of statement of cash flows. income and expenses during the reporting period. Actual Inventories outcomes could differ from those estimates. Most U.S. inventories are stated at cost, using the Revenue Recognition last-in, first-out (“LIFO”) method of accounting, which Revenue from sales is recognized by all operating does not exceed market. All other inventories are stated at segments when goods are shipped and title to inventory cost, using the first-in, first-out (“FIFO”) method of and risk of loss passes to the customer or when services accounting, which does not exceed market. PPG have been rendered. determines cost using either average or standard factory Shipping and Handling Costs costs, which approximate actual costs, excluding certain fixed costs such as depreciation and property taxes. Amounts billed to customers for shipping and handling are reported in “Net sales” in the accompanying Marketable Equity Securities consolidated statement of income. Shipping and handling The Company’s investment in marketable equity costs incurred by the Company for the delivery of goods securities is recorded at fair market value and reported in to customers are included in “Cost of sales, exclusive of “Other current assets” and “Investments” in the depreciation and amortization” in the accompanying accompanying consolidated balance sheet with changes in consolidated statement of income. fair market value recorded in income for those securities designated as trading securities and in other Selling, General and Administrative Costs comprehensive income, net of tax, for those designated as Amounts presented as “Selling, general and available for sale securities. administrative” in the accompanying consolidated statement of income are comprised of selling, customer Property service, distribution and advertising costs, as well as the Property is recorded at cost. PPG computes costs of providing corporate-wide functional support in depreciation by the straight-line method based on the such areas as finance, law, human resources and planning. estimated useful lives of depreciable assets. Additional Distribution costs pertain to the movement and storage of expense is recorded when facilities or equipment are finished goods inventory at company-owned and leased subject to abnormal economic conditions or obsolescence.38 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 41. Notes to the Consolidated Financial StatementsSignificant improvements that add to productive capacity Product Warrantiesor extend the lives of properties are capitalized. Costs for The Company accrues for product warranties at therepairs and maintenance are charged to expense as time the associated products are sold based on historicalincurred. When property is retired or otherwise disposed claims experience. As of December 31, 2011 and 2010,of, the original cost and related accumulated depreciation the reserve for product warranties was $11 million and $7balance are removed from the accounts and any related million, respectively. Pretax charges against income forgain or loss is included in income. Amortization of the product warranties in 2011, 2010 and 2009 totaled $14cost of capitalized leased assets is included in depreciation million, $7 million and $6 million, respectively. Cashexpense. Property and other long-lived assets are reviewed outlays related to product warranties were $10 million infor impairment whenever events or circumstances 2011 and $7 million annually in 2010 and 2009.indicate that their carrying amounts may not berecoverable. Asset Retirement Obligations An asset retirement obligation represents a legalGoodwill and Identifiable Intangible Assets obligation associated with the retirement of a tangible Goodwill represents the excess of the cost over the long-lived asset that is incurred upon the acquisition,fair value of acquired identifiable tangible and intangible construction, development or normal operation of thatassets less liabilities assumed from acquired businesses. long-lived asset. PPG recognizes asset retirementIdentifiable intangible assets acquired in business obligations in the period in which they are incurred, if acombinations are recorded based upon their fair value at reasonable estimate of fair value can be made. The assetthe date of acquisition. retirement obligation is subsequently adjusted for changes in fair value. The associated estimated asset retirement The Company tests goodwill of each reporting unit costs are capitalized as part of the carrying amount of thefor impairment at least annually in connection with PPG’s long-lived asset and depreciated over its useful life. PPG’sstrategic planning process. The goodwill impairment test asset retirement obligations are primarily associated withis performed by comparing the fair value of the associated closure of certain assets used in the chemicalsreporting unit as of September 30 to its carrying value. manufacturing process.The Company’s reporting units are its operating segments.(See Note 24, “Reportable Business Segment Information” The accrued asset retirement obligation was $12for further information concerning the Company’s million and $13 million as of December 31, 2011 andoperating segments.) Fair value is estimated using 2010, respectively.discounted cash flow methodologies. PPG’s only conditional asset retirement obligation The Company has determined that certain acquired relates to the possible future abatement of asbestostrademarks have indefinite useful lives. The Company contained in certain PPG production facilities. Thetests the carrying value of these trademarks for asbestos in PPG’s production facilities arises from theimpairment at least annually, as of September 30, by application of normal and customary building practices incomparing the fair value of each trademark to its carrying the past when the facilities were constructed. Thisvalue. Fair value is estimated by using the relief from asbestos is encapsulated in place and, as a result, there isroyalty method (a discounted cash flow methodology). no current legal requirement to abate it. Inasmuch as there is no requirement to abate, the Company does not Identifiable intangible assets with finite lives are have any current plans or an intention to abate andamortized on a straight-line basis over their estimated therefore the timing, method and cost of futureuseful lives (2 to 25 years) and are reviewed for abatement, if any, are not known. The Company has notimpairment whenever events or circumstances indicate recorded an asset retirement obligation associated withthat their carrying amount may not be recoverable. asbestos abatement, given the uncertainty concerning theAllowance for Doubtful Accounts timing of future abatement, if any. The Company provides an allowance for doubtful Accounting Standards Adopted in 2011accounts to reduce receivables to their estimated net In April 2011, the Financial Accounting Standardsrealizable value when it is probable that a loss will be Board (“FASB”) issued revisions to the accountingincurred. Those estimates are based on historical guidance related to troubled debt restructuring. This newcollection experience, current economic and market guidance was effective for the first interim or annualconditions, a review of the aging of accounts receivable period beginning on or after June 15, 2011 and should beand the assessments of current creditworthiness of applied retrospectively to the beginning of the annualcustomers. period of adoption. PPG adopted the new requirements in the third quarter of 2011 retrospectively as of January 1, 2011; however, the adoption of this guidance did not have 2011 PPG ANNUAL REPORT AND FORM 10-K 39
  • 42. Notes to the Consolidated Financial Statements a material effect on its consolidated financial position as producer of architectural coatings and woodcare of December 31, 2011 or its consolidated results of products, operates six manufacturing facilities throughout operations or cash flows for the year ended December 31, Europe, and its products are sold primarily in Denmark, 2011. France, Germany, Portugal, Poland, and Spain through professional and do-it-yourself channels. Accounting Standards to be Adopted in Future Years In May 2011, the FASB issued an amendment to the Also in early January 2012, PPG completed the fair value measurement guidance and disclosure purchase of the coatings businesses of Colpisa requirements to establish U.S. Generally Accepted Colombiana de Pinturas and its affiliate, Colpisa Equador Accounting Principles (“GAAP”) in common with (“Colpisa”), for $38 million, of which $7 million is International Financial Reporting Standards (“IFRS”) currently being held in escrow. Colpisa manufactures and measurement and reporting requirements. The new distributes coatings for automotive OEM, automotive requirements are effective for the first interim or annual refinish and industrial customers in Colombia and period beginning after December 15, 2011. The Ecuador. requirements are to be applied prospectively. PPG is The Company spent $56 million on acquisitions in currently evaluating the new requirements; however, it 2011, including purchase price adjustments related to does not expect that the adoption of this guidance will acquisitions that were completed prior to December 31, have a material effect on its consolidated financial 2010. In May 2011, PPG acquired the assets of Equa- position, results of operations or cash flows. Chlor, Inc. for $28 million, of which $3 million is held in In June 2011, the FASB issued an amendment to the escrow. The excess fair value of the assets acquired and requirements for presenting comprehensive income. The liabilities assumed, which consisted principally of new requirements are effective for the first interim or property and operating working capital, over the purchase annual period beginning after December 15, 2011. The price resulted in a bargain purchase gain of $10 million. requirements are to be applied retrospectively. The This gain was partially offset by a $1 million loss related standard requires other comprehensive income to be to the step up to fair value of acquired inventory. The gain presented in a continuous statement of comprehensive is reported in “Other earnings” and the inventory step-up income that would combine the components of net is included in “Cost of sales” in the accompanying income and other comprehensive income, or in a separate, consolidated statement of income for the year-ended but consecutive, statement following the statement of December 31, 2011. The remaining amounts spent on income. PPG will apply these new requirements in the acquisitions during the year ended December 31, 2011, first quarter of 2012; however, the adoption of this relate to several acquisitions in the coatings businesses, guidance will not have a material effect on its including the acquisition of a South African automotive consolidated financial position, results of operations or refinish distributor. cash flows. The Company spent $34 million on acquisitions (net 2. Acquisitions of cash acquired of $6 million) in 2010, including In early January 2012, PPG completed the purchase purchase price adjustments related to acquisitions that of European coatings company Dyrup A/S (“Dyrup”), were completed prior to December 31, 2009. based in Copenhagen, Denmark, from its owner, The Company spent $26 million on acquisitions (net Monberg & Thorsen, a public holding company, for $44 of cash acquired of $1 million) in 2009, including million of which $26 million is currently being held in purchase price adjustments related to acquisitions that escrow, and assumed debt of $111 million. Dyrup, a were completed prior to December 31, 2008.40 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 43. Notes to the Consolidated Financial Statements3. Working Capital Detail The Company’s investments in and advances to(Millions) 2011 2010 equity affiliates are comprised principally of 50 percentReceivables ownership interests in a number of joint ventures that Trade - net(1) $2,512 $2,447 manufacture and sell coatings, glass and chemicals Equity affiliates 28 24 products, the most significant of which produce fiber Other - net 290 307 glass products and are located in Asia. The Company’s Total $2,830 $2,778 investments in and advances to equity affiliates alsoInventories(2) include its approximate 40 percent interest in Pittsburgh Finished products $ 935 $ 912 Glass Works L.L.C. (“PGW”), which had a carrying value Work in process 144 136 of $29 million at December 31, 2011. In April 2011, the Raw materials 414 411 Company received $168 million from PGW, which was Supplies 114 114 comprised of the repayment of $90 million of notes Total $1,607 $1,573 receivable from PGW and a $78 million return of capital.Accounts payable and accrued liabilities In addition, PPG has a 50 percent ownership interest Trade creditors $1,612 $1,626 in RS Cogen, L.L.C., which toll produces electricity and Accrued payroll 414 405 Customer rebates 201 218 steam primarily for PPG and its joint venture partner. The Other postretirement and pension benefits 108 109 joint venture was formed with a wholly-owned subsidiary Income taxes 51 56 of Entergy Corporation in 2000 for the construction and Other 610 588 operation of a $300 million process steam, natural Total $2,996 $3,002 gas-fired cogeneration facility in Lake Charles, La., the majority of which was financed by a syndicate of banks.(1) Allowance for Doubtful Accounts equaled $71 million and $91 million as of December 31, 2011 and 2010, respectively. PPG’s future commitment to purchase electricity and(2) Inventories valued using the LIFO method of inventory valuation comprised steam from the joint venture approximates $23 million 35 and 33 of total gross inventory values as of December 31, 2011 and per year subject to contractually defined inflation 2010, respectively. If the FIFO method of inventory valuation had been adjustments for the next 11 years. The purchases for the used, inventories would have been $232 million and $201 million higher as of December 31, 2011 and 2010, respectively. During the year ended years ended December 31, 2011, 2010 and 2009 were December 31, 2011 and 2010, certain inventories accounted for on the $23 million in each year. LIFO method of accounting were reduced, which resulted in the liquidation of certain quantities carried at costs prevailing in prior years. The effect on RS Cogen is a variable interest entity under U.S. earnings was income of $0.9 million and expense of $0.3 million for the accounting guidance. The joint venture’s critical years ended December 31, 2011 and 2010, respectively. operations are overseen by a management committee,4. Property which has equal representation by PPG and Entergy. With Useful the power to direct the activities of RS Cogen equally Lives shared between RS Cogen’s two owners, PPG does not(Millions) (years) 2011 2010 consider itself to be the joint venture’s primary Land and land improvements 5-30 $ 482 $ 477 beneficiary. Accordingly, PPG accounts for its investment Buildings 20-40 1,482 1,467 in RS Cogen as an equity method investment. Machinery and equipment 5-25 5,736 5,587 The following table summarizes the Company’s Other 3-20 694 652 maximum exposure to loss associated with RS Cogen as of Construction in progress 220 232 December 31, 2011: Total(1) $8,614 $8,415 (Millions)(1) Interest capitalized in 2011, 2010 and 2009 was $9 million, $7 million Investment in and advances to RS Cogen $ 11 and $9 million, respectively. Take-or-pay obligation under power tolling arrangement 2575. Investments Maximum exposure to loss $268(Millions) 2011 2010Investments in and advances to equity affiliates $261 $416Marketable equity securities Trading (See Note 14) 56 59 Available for sale — 6Other 70 69 Total $387 $550 2011 PPG ANNUAL REPORT AND FORM 10-K 41
  • 44. Notes to the Consolidated Financial Statements Summarized financial information of PPG’s equity The carrying amount of acquired trademarks with affiliates on a 100 percent basis, in the aggregate, is as indefinite lives as of December 31, 2011 and 2010 totaled follows: $316 million and $323 million, respectively. (Millions) 2011 2010 The Company’s identifiable intangible assets with Working capital $ 339 $ 130 finite lives are being amortized over their estimated useful Property, net 952 927 lives and are detailed below. Short-term debt (202) (137) Dec. 31, 2011 Dec. 31, 2010 Long-term debt (626) (423) Gross Gross Carrying Accumulated Carrying Accumulated Other, net 61 184 (Millions) Amount Amortization Net Amount Amortization Net Net assets $ 524 $ 681 Acquired technology $ 511 $(308) $203 $ 515 $(273) $242 (Millions) 2011 2010 2009 Customer-related Revenues $1,633 $1,519 $1,320 intangibles 945 (412) 533 974 (355) 619 Net earnings/(loss) $ 80 $ 103 $ (4) Tradenames 116 (50) 66 120 (44) 76 Other 32 (25) 7 31 (23) 8 PPG’s share of undistributed net earnings of equity Balance $1,604 $(795) $809 $1,640 $(695) $945 affiliates was $101 million and $94 million as of December 31, 2011 and 2010, respectively. Dividends received from equity affiliates were $19 million, $6 Aggregate amortization expense was $121 million, million and $11 million in 2011, 2010 and 2009, $124 million and $126 million in 2011, 2010 and 2009, respectively. respectively. The estimated future amortization expense of identifiable intangible assets is approximately $120 As of December 31, 2011, there were no unrealized million during 2012, approximately $105-$110 million pretax gains or losses related to marketable equity during 2013, 2014, 2015, and approximately $85 million securities available for sale. As of December 31, 2010, in 2016. there were unrealized pretax gains of $1 million recorded in “Accumulated other comprehensive loss” in the 7. Business Restructuring accompanying consolidated balance sheet related to marketable equity securities available for sale. PPG sold In March of 2009, the Company finalized a certain of these investments resulting in recognition of restructuring plan focused on further reducing its global pretax gains of $3 million, $2 million and $0.1 million in cost structure, driven by global economic conditions, low 2011, 2010, and 2009, respectively. Cash proceeds of $9 end-market demand and acceleration of cost-savings from million, $3 million, and $0.1 million were received in the integration of the 2008 acquisition of SigmaKalon. As 2011, 2010, and 2009, respectively. part of the restructuring, PPG closed the paint manufacturing portion of its facility in Saultain, France at 6. Goodwill and Other Identifiable Intangible Assets the end of 2009, as well as several smaller production, The change in the carrying amount of goodwill laboratory, warehouse and distribution facilities across attributable to each reportable business segment for the PPG’s businesses and regions, and has reduced staffing years ended December 31, 2011 and 2010 was as follows: across the company globally. Optical Architectural and Performance Industrial Coatings— Specialty Commodity As a result of this restructuring plan, in March of (Millions) Coatings Coatings EMEA Materials Glass Chemicals 2009 the Company recorded a charge of $186 million for Total Balance, business restructuring, including severance and other Jan. 1, 2010$ 1,143 $ 509 $ 1,021 $ 51 $ 57 $ 3 $ 2,784 costs of $154 million and asset write-offs of $32 million. Goodwill from acquisitions — 7 8 — — 3 18 The Company also incurred approximately $11 Currency million of additional costs directly associated with the translation 8 (21) (63) (2) (5) — (83) restructuring actions for demolition, dismantling, Balance, relocation and training, of which $9 million was charged Dec. 31, 2010 1,151 $ $ 495 $ 966 $ 49 $ 52 $ 6 $ 2,719 to expense as incurred in 2009 and $2 million in the first Goodwill from quarter of 2010. acquisitions 4 — 1 — — — 5 Currency At December 31, 2011, the remaining reserve for the translation (16) (11) (34) (1) (2) — (64) 2009 restructuring plan of $4 million relates to severance Balance, payments to be made to certain former employees and are Dec. 31, 20111,139 $ $ 484 $ 933 $ 48 $ 50 $ 6 $ 2,660 all expected to be paid before December 31, 2012.42 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 45. Notes to the Consolidated Financial Statements The following table summarizes the activity through (1) PPG entered into several interest rate swaps which have the effect of converting $445 million and $450 million as of December 31, 2011 andDecember 31, 2011 related to the 2009 restructuring 2010, respectively, of these fixed rate notes to variable rates, based onactions: the three-month London Interbank Offered Rate (LIBOR). The fair Severance values of these interest rate swaps are based on Level 2 inputs as(Millions, except no. of and Other Asset Total Employees described in Note 9. The weighted average effective interest rate foremployees) Costs Write-offs Reserve Impacted these borrowings, including the effects of the outstanding swaps, wasPerformance Coatings $ 35 $ 4 $ 39 764 3.1% and 4.3% for the years ended December 31, 2011 and 2010, respectively. Refer to Notes 1 and 11 for additional information.Industrial Coatings 75 16 91 935 (2) In 2010, the $1 billion notes issuance was issued at a discount. TheArchitectural Coatings - effective interest rates of the 2016, 2020, and 2040 notes were 2.2%,EMEA 17 — 17 130 3.8%, and 5.5% respectively, at December 31, 2010. In 2011, the 2016Optical & Specialty Materials 3 9 12 219 notes were converted to variable rate debt and are included in note (1)Commodity Chemicals 6 — 6 42 above.Glass 11 2 13 247Corporate 7 1 8 91 Aggregate maturities of long-term debt during the Total $154 $ 32 $ 186 2,428 next five years are (in millions) $75 in 2012, $613 in 2009 activity (77) (32) (109) (1,902) 2013, $2 in 2014, $391 in 2015, and $421 in 2016. Currency impact 11 — 11 — In June 2011, the Company repaid a $400 million Balance as of December 31, 2009 $ 88 $ — $ 88 526 three year, unsecured term loan, which had a scheduled maturity date of June 2012. There was no prepayment 2010 activity (67) — (67) (526) penalty. This loan was made into in June 2009. PPG used Currency impact (4) — (4) — $116 million of the proceeds from this term loan to retire Balance as of its 7.05% Notes due 2009; the remainder of the loan December 31, 2010 $ 17 $ — $ 17 — proceeds of approximately $284 million were used to 2011 activity (13) — (13) — retire outstanding amounts under a €650 million Currency impact — — — — revolving credit facility. The interest rate was variable Balance as of based on a spread over LIBOR. This term loan was repaid December 31, 2011 $ 4 $ — $ 4 — using a portion of the proceeds from our November 2010 At December 31, 2011 and 2010 there was a $1 billion debt issuance.remaining reserve of $1 million and $6 million, On November 12, 2010, PPG completed a publicrespectively related to a 2008 restructuring plan. All offering of $250 million in aggregate principal amount ofremaining accrued amounts are expected to be paid before its 1.900% Notes due 2016, $500 million in aggregateDecember 31, 2012. principal amount of its 3.600% Notes due 2020 and $2508. Debt and Bank Credit Agreements and Leases million in aggregate principal amount of its 5.500% Notes(Millions) 2011 2010 due 2040. These notes were issued pursuant to an6 7⁄ 8% notes, due 2012(1) $ 71 $ 71 indenture dated as of March 18, 2008 (the “Original5.75% notes, due 2013(1) 600 600 Indenture”) between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the3 7⁄ 8% notes, due 2015 (€300) 388 401 “Trustee”), as supplemented by a first supplemental1.9 % notes, due 2016(1)(2) 248 248 indenture dated as of March 18, 2008 between the7 3⁄ 8% notes, due 2016(1) 146 146 Company and the Trustee (the “First Supplemental6 7⁄ 8% notes, due 2017 74 74 Indenture”) and a second supplemental indenture dated6.65% notes, due 2018 700 700 as of November 12, 2010 between the Company and the7.4% notes, due 2019 198 198 Trustee (the “Second Supplemental Indenture” and,3.6% notes, due 2020(2) 495 494 together with the Original Indenture and the First9% non-callable debentures, due 2021 149 149 Supplemental Indenture, the “Indenture”). The Company7.70% notes, due 2038 249 249 may issue additional debt from time to time pursuant to5.5% notes, due 2040(2) 248 248 the Original Indenture. The Indenture governing theseUnsecured term loan, due 2012 — 400 notes contains covenants that limit the Company’s abilityImpact of derivatives on debt(1) 42 24 to, among other things, incur certain liens securingVarious other non-U.S. debt, weighted average 2.3% indebtedness, engage in certain sale-leasebackas of December 31, 2011 and 3.4% as ofDecember 31, 2010 9 11 transactions, and enter into certain consolidations,Capital lease obligations 32 34 mergers, conveyances, transfers or leases of all or Total 3,649 4,047 substantially all the Company’s assets. The terms of these notes also require the Company to make an offer toLess payments due within one year 75 4 repurchase Notes upon a Change of Control Triggering Long-term debt $3,574 $4,043 Event (as defined in the Second Supplemental Indenture) 2011 PPG ANNUAL REPORT AND FORM 10-K 43
  • 46. Notes to the Consolidated Financial Statements at a price equal to 101% of their principal amount plus other material indebtedness, the failure to satisfy accrued and unpaid interest. covenants contained in the Credit Agreement, a change in control of the Company and specified events of Cash proceeds from the sale of these notes was $983 bankruptcy and insolvency. million (net of discount and issuance costs). The discount and issuance costs related to these notes, which totaled PPG’s non-U.S. operations have uncommitted lines of $17 million, will be amortized to interest expense over the credit totaling $679 million of which $36 million was respective terms of the notes. used as of December 31, 2011. These uncommitted lines of credit are subject to cancellation at any time and are In August 2010, PPG entered into a three-year credit generally not subject to any commitment fees. agreement with several banks and financial institutions (the “Credit Agreement”). The Credit Agreement provides Short-term debt outstanding as of December 31, 2011 for a $1.2 billion unsecured revolving credit facility. In and 2010, was as follows: connection with entering into this Credit Agreement, the (Millions) 2011 2010 Company terminated its €650 million and its $1 billion Other, weighted average 3.72% as of Dec. 31, 2011 and revolving credit facilities that were each set to expire in 3.39% as of December 31, 2010 33 24 2011. There were no outstanding amounts due under Total $33 $24 either revolving facility at the times of their termination. The Company has the ability to increase the size of the PPG is in compliance with the restrictive covenants Credit Agreement by up to an additional $300 million, under its various credit agreements, loan agreements and subject to the receipt of lender commitments and other indentures. The Company’s revolving credit agreements conditions. The Credit Agreement will terminate and all include a financial ratio covenant. The covenant requires amounts outstanding will be due and payable on that the amount of total indebtedness not exceed 60% of August 5, 2013. the Company’s total capitalization excluding the portion of accumulated other comprehensive income (loss) The Credit Agreement provides that loans will bear related to pensions and other postretirement benefit interest at rates based, at the Company’s option, on one of adjustments. As of December 31, 2011, total indebtedness two specified base rates plus a margin based on certain was 43 percent of the Company’s total capitalization formulas defined in the Credit Agreement. Additionally, excluding the portion of accumulated other the Credit Agreement contains a commitment fee on the comprehensive income (loss) related to pensions and amount of unused commitment under the Credit other postretirement benefit adjustments. Additionally, Agreement ranging from 0.125% to 0.625% per annum. substantially all of the Company’s debt agreements The applicable interest rate and the fee will vary contain customary cross-default provisions. Those depending on the ratings established by Standard & provisions generally provide that a default on a debt Poor’s Financial Services LLC and Moody’s Investor service payment of $10 million or more for longer than Service Inc. for the Company’s non-credit enhanced, long- the grace period provided (usually 10 days) under one term, senior, unsecured debt. There were no amounts agreement may result in an event of default under other outstanding under the credit agreement at December 31, agreements. None of the Company’s primary debt 2011; however, the available borrowing rate on a one obligations are secured or guaranteed by the Company’s month, U.S. dollar denominated borrowing would have affiliates. been 1.05 percent. Interest payments in 2011, 2010 and 2009 totaled The Credit Agreement contains usual and customary $212 million, $189 million and $201 million, restrictive covenants for facilities of its type, which respectively. include, with specified exceptions, limitations on the Company’s ability to create liens or other encumbrances, In October 2009, the Company entered into an to enter into sale and leaseback transactions and to enter agreement with a counterparty to repurchase up to into consolidations, mergers or transfers of all or 1.2 million shares of the Company’s stock of which substantially all of its assets. The Credit Agreement also 1.1 million shares were purchased in the open market requires the Company to maintain a ratio of total (465,006 of these shares were purchased as of indebtedness to total capitalization, as defined in the December 31, 2009 at a weighted average price of $56.66 Credit Agreement, of 60 percent or less. per share). The counterparty held the shares until September of 2010 when the Company paid $65 million The Credit Agreement contains customary events of and took possession of these shares. default that would permit the lenders to accelerate the repayment of any loans, including the failure to make In December 2008, the Company entered into an timely payments when due under the Credit Agreement or agreement with a counterparty to repurchase 1.5 million44 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 47. Notes to the Consolidated Financial Statementsshares of the Company’s stock. Under the terms of the Assets and liabilities reported at fair value on aagreement, the counterparty purchased the shares in the recurring basis:open market in January 2009 and held the shares until December 31, 2011December 2009 when the Company paid the agreed upon (Millions) Level 1 Level 2 Level 3 Totalprice of $39.53 per share and took possession of these Short-term investments:shares. The total cost of this share repurchase was Commercial paper andapproximately $59 million. restricted cash $— $ 21 $— $ 21 Rental expense for operating leases was $249 million, Marketable equity securities 4 — — 4$233 million and $241 million in 2011, 2010 and 2009, Other current assets:respectively. The primary leased assets include paint Foreign currency contracts(1) — 1 — 1stores, transportation equipment, warehouses and other Interest rate swaps(1) — 1 — 1distribution facilities, and office space, including the Equity forward arrangement(1) — 56 — 56Company’s corporate headquarters located in Pittsburgh, Investments:Pa. Minimum lease commitments for operating leases that Marketable equity securities 56 — — 56have initial or remaining lease terms in excess of one year Other assets:as of December 31, 2011, are (in millions) $162 in 2012, Interest rate swaps(1) — 25 — 25$124 in 2013, $97 in 2014, $74 in 2015, $55 in 2016 and Accounts payable and accrued$131 thereafter. liabilities: The Company had outstanding letters of credit and Foreign currency contracts(1) — 6 — 6surety bonds of $110 million as of December 31, 2011. The Forward starting swaps(1) — 92 — 92letters of credit secure the Company’s performance to third Natural gas swap contracts(1) — 9 — 9parties under certain self-insurance programs and other Other liabilities:commitments made in the ordinary course of business. As Cross currency swaps(1) — 120 — 120of December 31, 2011 and 2010, guarantees outstanding Foreign currency contracts(1) — 1 — 1were $90 million and $86 million, respectively. The (1) This entire balance is designated as a hedging instrument under GAAP.guarantees relate primarily to debt of certain entities in December 31, 2010which PPG has an ownership interest and selected (Millions) Level 1 Level 2 Level 3 Totalcustomers of certain of the Company’s businesses. A Short-term investments:portion of such debt is secured by the assets of the related Commercial paper andentities. The carrying values of these guarantees were $13 restricted cash $— $632 $— $632million and $10 million as of December 31, 2011 and 2010, Marketable equity securities 5 — — 5respectively, and the fair values were $21 million and Other current assets:$14 million, as of December 31, 2011 and 2010, Foreign currency contracts(1) — 4 — 4respectively. The fair value of each guarantee was estimated Equity forward arrangement(1) — 55 — 55by comparing the net present value of two hypotheticalcash flow streams, one based on PPG’s incremental Investments:borrowing rate and the other based on the borrower’s Marketable equity securities 65 — — 65incremental borrowing rate, as of the effective date of the Other assets:guarantee. Both streams were discounted at a risk free rate Interest rate swaps(1) — 20 — 20of return. The Company does not believe any loss related to Accounts payable and accruedthese letters of credit, surety bonds or guarantees is likely. liabilities: Foreign currency contracts(1) — 4 — 49. Fair Value Measurement Natural gas swap contracts(1) — 28 — 28 The accounting guidance on fair value measurements Other liabilities:establishes a hierarchy with three levels of inputs used to Cross currency swaps(1) — 163 — 163determine fair value. Level 1 inputs are quoted prices in Forward starting swaps(1) — 21 — 21active markets for identical assets and liabilities, are Natural gas swap contracts(1) — 3 — 3considered to be the most reliable evidence of fair value, (1) This entire balance is designated as a hedging instrument under GAAP.and should be used whenever available. Level 2 inputs areobservable prices that are not quoted on active exchanges.Level 3 inputs are unobservable inputs employed formeasuring the fair value of assets or liabilities. 2011 PPG ANNUAL REPORT AND FORM 10-K 45
  • 48. Notes to the Consolidated Financial Statements Assets and liabilities reported at fair value on a instruments to manage its exposure to fluctuating natural nonrecurring basis: gas prices through the use of natural gas swap contracts. There were no nonmonetary assets or liabilities PPG also uses forward currency and option contracts as written down to fair value on a nonrecurring basis during hedges against its exposure to variability in exchange 2010 or 2011. rates on short-term intercompany borrowings and As a result of finalizing a restructuring plan, as transactions, unrecognized firm sales commitments and discussed in Note 7, “Business Restructuring,” long-lived cash flows denominated in foreign currencies. PPG uses assets with a carrying amount of $36 million were foreign denominated debt and cross currency swap written-down to their fair value of $4 million, resulting in contracts to hedge net investments in foreign operations. a charge of $32 million, which was included within the Interest rate swaps are used to manage the Company’s business restructuring charge in March 2009. These long- exposure to changing interest rates as such rate changes lived assets were valued using Level 3 inputs. affect the fair value of fixed rate borrowings. Forward starting swaps are used to lock-in a fixed interest rate, to 10. Financial Instruments, Excluding Derivative which will be added a corporate spread, related to future Financial Instruments long-term debt refinancings. PPG also uses an equity Included in PPG’s financial instrument portfolio are forward arrangement to hedge the Company’s exposure to cash and cash equivalents, short-term investments, cash changes in the fair value of PPG stock that is to be held in escrow, marketable equity securities, company- contributed to the asbestos settlement trust as discussed owned life insurance and short and long-term debt in Note 15, “Commitments and Contingent Liabilities.” instruments. The fair values of these financial instruments approximated their carrying values at December 31, 2011 PPG enters into derivative financial instruments with and 2010, in the aggregate, except for long-term debt. high credit quality counterparties and diversifies its Long-term debt (excluding capital lease obligations), positions among such counterparties in order to reduce its had carrying and fair values totaling $3,617 million and exposure to credit losses. The Company did not realize a $4,154 million, respectively, as of December 31, 2011. credit loss on derivatives during the three-year period Long-term debt (excluding capital lease obligations), had ended December 31, 2011. carrying and fair values totaling $4,013 million and PPG centrally manages certain of its foreign currency $4,299 million, respectively, as of December 31, 2010. transaction risks to minimize the volatility in cash flows The fair values of the debt instruments were based caused by currency fluctuations. Decisions on whether to on discounted cash flows and interest rates then currently use derivative financial instruments to hedge the net available to the Company for instruments of the same transaction exposures related to all regions of the world remaining maturities. are made based on the amount of those exposures by 11. Derivative Financial Instruments and Hedge currency and, in certain situations, an assessment of the Activities near-term outlook for certain currencies. This net hedging The Company recognizes all derivative financial strategy does not qualify for hedge accounting; therefore, instruments as either assets or liabilities at fair value on the change in the fair value of these instruments is the balance sheet. The accounting for changes in the fair recorded in “Other charges” in the accompanying value of a derivative depends on the use of the consolidated statement of income in the period of change. instrument. To the extent that a derivative is effective as a As of December 31, 2011 and 2010, the fair value of these hedge of an exposure to future changes in cash flows, the contracts were assets of $0.4 million and $0.1 million, change in fair value of the instrument is deferred in respectively. accumulated other comprehensive income (loss) PPG designates forward currency contracts as hedges (“AOCI”). Any portion considered to be ineffective is against the Company’s exposure to variability in exchange reported in earnings immediately, including changes in rates on short-term intercompany borrowings and value related to credit risk. To the extent that a derivative transactions denominated in foreign currencies. To the is effective as a hedge of an exposure to future changes in extent effective, changes in the fair value of these fair value, the change in the derivative’s fair value is offset instruments are deferred in AOCI and subsequently in the consolidated statement of income by the change in reclassified to “Other charges” in the accompanying fair value of the item being hedged. To the extent that a consolidated statement of income as foreign exchange derivative or a financial instrument is effective as a hedge gains and losses are recognized on the related of a net investment in a foreign operation, the change in intercompany and other transactions. The portion of the the derivative’s fair value is deferred as an unrealized change in fair value considered to be ineffective is currency translation adjustment in AOCI. recognized immediately in “Other charges” in the PPG’s policies do not permit speculative use of accompanying consolidated statement of income. All derivative financial instruments. PPG uses derivative amounts related to these instruments deferred in AOCI as46 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 49. Notes to the Consolidated Financial Statementsof December 31, 2011 will be reclassified to earnings As of December 31, 2011, the Company hadwithin the next twelve months. As of December 31, 2011 accumulated pretax unrealized translation gains in AOCIand 2010, the fair value of these instruments was a net of $14 million and as of December 31, 2010 accumulatedliability of $5 million and $2 million, respectively. pretax unrealized losses in AOCI of $33 million, PPG designates forward currency contracts as hedges respectively, related to both the euro-denominatedagainst the Company’s exposure to future changes in fair borrowings and the cross currency swaps that have beenvalue related to certain firm sales commitments designated as hedges of net investments.denominated in foreign currencies. These contracts are Deferrals in AOCI related to hedges of the Company’sdesignated as fair value hedges. As such, they are reported net investments in European operations would beat fair value in the Company’s consolidated balance sheet, reclassified and recognized in earnings upon a substantialwith changes in the fair value of these contracts and that liquidation, sale or partial sale of such investments orof the related firm sales commitments reported in net upon impairment of all or a portion of such investments.sales. As of December 31, 2011, these contracts converted$91 million to the South Korean won over the 30 month The Company manages its interest rate risk byperiod ending June 30, 2014. As of December 31, 2010, balancing its exposure to fixed and variable rates whilecontracts converted $76 million to the South Korean won attempting to minimize its interest costs. Generally, theover the 33 month period ending September 30, 2013. As Company maintains variable interest rate debt at a level ofof December 31, 2011 and 2010, the fair value of the approximately 25 percent to 50 percent of totalcontracts was a net liability of $1 million and a net asset borrowings. PPG principally manages its fixed andof $2 million, respectively. variable interest rate risk by retiring and issuing debt from time to time and through the use of interest rate swaps. As PPG entered into nine U.S. dollar to euro cross of December 31, 2011 and 2010, these swaps convertedcurrency swap contracts with a total notional amount of $445 million and $450 million of fixed rate debt to$1.16 billion, of which $600 million will settle on variable rate debt, respectively. The swaps are designatedMarch 15, 2013 and $560 million will settle on March 15, as fair value hedges. As such, these swaps are carried at2018. Another contract, with a notional amount of $140 fair value. Changes in the fair value of these swaps andmillion and a settlement date of March 15, 2018 was that of the related debt are recorded in “Interest expense”converted to cash during the first quarter of 2010. in the accompanying consolidated statement of income.Accordingly, on settlement of the remaining outstanding As of December 31, 2011 and 2010, the fair value of thesecontracts, PPG will receive $1.16 billion U.S. dollars and contracts was an asset of $26 million and $20 million,pay euros to the counterparties to the contracts. During respectively.the term of these contracts, PPG will receive semiannualpayments in March and September of each year based on The Company entered into forward starting swaps inU.S. dollar, long-term fixed interest rates, and PPG will 2009 and in the second quarter of 2010 to effectivelymake annual payments in March of each year to the lock-in a fixed interest rate of 4.8 percent for future debtcounterparties based on euro, long-term fixed interest refinancings with an anticipated term of ten years basedrates. The Company has designated these swaps as hedges on the ten year swap rate, to which will be added aof its net investment in the acquired SigmaKalon corporate spread. All of the swap contracts are required tobusinesses and, as a result, the mark to market fair value be settled in July 2012. As of December 31, 2011 andadjustments of the swaps have been and will be recorded 2010, the notional amount of the swaps outstandingas a component of AOCI, and the cash flow impact of totaled $400 million. To the extent that the swaps arethese swaps has been and will be classified as investing effective, changes in the fair values of the swap contractsactivities in the consolidated statement of cash flows. As are deferred in AOCI. The portion of the change in fairof December 31, 2011 and 2010, the fair value of these value considered to be ineffective is recognizedcontracts was a net liability of $120 million and $163 immediately in “Other charges” in the accompanyingmillion, respectively. consolidated statement of income. Amounts deferred in AOCI will be reclassified to interest expense over the As of December 31, 2011 and 2010, PPG designated same period of time that interest expense is recognized on€300 million euro-denominated borrowings as a hedge of the future borrowings. As of December 31, 2011 anda portion of PPG’s net investment in the Company’s 2010, the fair value of these swaps was a liability of $92European operations. Also, during 2010, certain portions million and $21 million, respectively.of PPG’s various other euro-denominated borrowingswere designated as hedges of PPG’s investments in its The Company uses derivative instruments to manageEuropean operations. As a result, the change in book its exposure to fluctuating natural gas prices through thevalue from adjusting these foreign-denominated use of natural gas swap contracts. To the extent that theseborrowings to current spot rates was deferred in AOCI. instruments are effective in hedging PPG’s exposure to 2011 PPG ANNUAL REPORT AND FORM 10-K 47
  • 50. Notes to the Consolidated Financial Statements price changes, changes in the fair values of the hedge provisions. In addition, should the Company be acquired contracts are deferred in AOCI and reclassified to “Cost of and its payment obligations under the derivative sales, exclusive of depreciation and amortization” as the instruments’ contractual arrangements not be assumed by natural gas is purchased. The amount of ineffectiveness is the acquirer, or should PPG enter into bankruptcy, reported in “Other charges” in the accompanying receivership or reorganization proceedings, the consolidated statement of income immediately. As of instruments would also be subject to accelerated December 31, 2011 and 2010, the fair value of these settlement. contracts was a liability of $9 million and $31 million, For the year ended December 31, 2011, Other respectively. As of December 31, 2011, the total pretax comprehensive loss included a net pretax loss due to cash loss deferred in AOCI related to contracts that mature flow hedge derivatives of $51 million ($32 million, net of within the twelve-month period ending December 31, tax). This loss was comprised of realized losses of $28 2012. million and unrealized losses of $79 million. The realized PPG entered into a one-year renewable equity losses related to the settlement during the period of natural gas swap contracts and interest rate swaps owned forward arrangement with a bank in 2003 in order to by RS Cogen (Refer to Note 5, “Investments” for a mitigate the impact on PPG earnings of changes in the fair discussion regarding this equity method investment.), value of 1,388,889 shares of PPG stock that are to be offset in part by realized gains on foreign currency contributed to the asbestos settlement trust as discussed contracts. The unrealized losses related to the change in in Note 15, “Commitments and Contingent Liabilities.” fair value of the natural gas swap contracts, forward This instrument, which has been renewed, is recorded at starting swaps and interest rate swaps owned by RS fair value as an asset or liability and changes in the fair Cogen, offset in part by the change in fair value of the value of this instrument are reflected in the “Asbestos foreign currency contracts. settlement – net” caption of the accompanying For the year ended December 31, 2010, Other consolidated statement of income. The total principal comprehensive loss included a net pretax loss due to cash amount payable for these shares is $62 million. PPG will flow hedge derivatives of $3 million ($2 million, net of pay to the bank interest based on the principal amount tax). This loss was comprised of realized losses of $93 and the bank will pay to PPG an amount equal to the million and unrealized losses of $96 million. The realized dividends paid on these shares during the period this losses related to the settlement during the period of instrument is outstanding. The difference between the natural gas swap contracts, interest rate swaps owned by principal amount and any amounts related to unpaid RS Cogen (Refer to Note 5, “Investments” for a discussion interest or dividends and the current market price for regarding this equity method investment.) and foreign these shares, adjusted for credit risk, represents the fair currency contracts. The unrealized losses related to the value of the instrument as well as the amount that PPG change in fair value of the natural gas swap contracts, would pay or receive if the bank chose to net settle the forward starting swaps, foreign currency contracts, and instrument. Alternatively, the bank may, at its option, interest rate swaps owned by RS Cogen. require PPG to purchase the shares covered by the arrangement at the principal amount adjusted for unpaid For the year ended December 31, 2009, Other interest and dividends as of the date of settlement. As of comprehensive income included a net pretax gain due to December 31, 2011 and 2010, the fair value of this cash flow hedge derivatives of $41 million ($25 million, contract was an asset of $56 million and $55 million, net of tax). This gain was comprised of realized losses of respectively. $159 million and unrealized losses of $118 million. The realized losses related to the settlement during the period No derivative instrument initially designated as a of natural gas swap contracts, interest rate swaps owned hedge instrument was undesignated or discontinued as a by RS Cogen and foreign currency contracts. The hedging instrument during 2011 or 2010. Nor were any unrealized losses related to the change in fair value of the amounts deferred in AOCI reclassified to earnings during natural gas swap and foreign currency contracts, offset in the three-year period ended December 31, 2011 related to part by the change in fair value on forward starting swaps hedges of anticipated transactions that were no longer and interest rate swaps owned by RS Cogen. expected to occur. Refer to Note 9, “Fair Value Measurement,” for All of the outstanding derivative instruments are additional disclosures related to the Company’s derivative subject to accelerated settlement in the event of PPG’s instruments outstanding as of December 31, 2011 and failure to meet its debt obligations or payment obligations 2010. under the terms of the instruments’ contractual48 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 51. Notes to the Consolidated Financial Statements The following tables provide details for the years December 31, 2010ended December 31, 2011 and 2010 related to fair value, Gain (Loss) Gain (Loss) Recognizedcash flow and net investment hedges, by type of derivative Deferredand financial instrument. All dollar amounts are pretax. Hedge Type (Millions) in OCI Amount Caption Fair ValueDecember 31, 2011 Interest rate swaps(a) Not Interest Gain applicable $ 12 expense (Loss) Gain (Loss) Recognized Deferred Foreign currency contracts(a) NotHedge Type (Millions) in OCI Amount Caption applicable (1) SalesFair Value Equity forward arrangements(a) Not Interest rate swaps(a) Not Interest applicable $ 16 expense applicable 37 Asbestos - net Foreign currency contracts (b) Not Total Fair Value $ 48 applicable 2 Sales Cash Flow Equity forward arrangements(a) Not applicable 1 Asbestos - net Natural gas swaps(a) $ (38) $(58) Cost of sales Total Fair Value $ 19 Interest rate swaps of RS Cogen Other (2) (2) earningsCash Flow Natural gas swaps(a) $(10) $(32) Cost of sales Forward starting swaps(b) Interest Interest rate swaps of RS Cogen Other (26) — expense (2) (2) earnings Foreign currency contracts(c) (32) (33) Other charges Forward starting swaps(c) Interest (73) — expense Other (a) Interest 2 — expense Foreign currency contracts(d) 6 6 Other charges Other Interest Total Cash Flow $ (96) $(93) — expense Net Investment Total Cash Flow $(79) $(28) Cross currency swaps(d) $145 $ — Other chargesNet Investment Foreign denominated debt 32 Other charges Cross currency swaps(e) $ 34 $— Other charges Total Net Investment $177 $ — Foreign denominated debt 13 Other charges Total Net Investment $ 47 $— Non-Hedge Foreign currency contracts NotNon-Hedge Foreign currency contracts Not applicable $ 3 Other charges applicable $— Other charges Total Non-Hedge $ 3 Total Non-Hedge $— (a) The ineffective portion related to each of the items was less than $0.1(a) The ineffective portion related to each of the items was less than $0.1 million of either income or expense. million of either income or expense. (b) The ineffective portion related to this item was $1 million of income.(b) The ineffective portion related to this item was $0.8 million of income. (c) The ineffective portion related to this item was $6 million of expense.(c) The ineffective portion related to this item was $3 million of income. (d) The ineffective portion related to this item was $3 million of expense.(d) The ineffective portion related to this item was $6 million of expense.(e) The ineffective portion related to this item was $2 million of expense. 2011 PPG ANNUAL REPORT AND FORM 10-K 49
  • 52. Notes to the Consolidated Financial Statements 12. Earnings Per Common Share The decline of the impact of U.S. state and local taxes The earnings per common share calculations for the is largely the result of the decline in U.S. earnings as a three years ended December 31, 2011, are as follows: percentage of total earnings. The increased impact on the 2011 and 2010 effective income tax rate of non-U.S. (Millions, except per share amounts) 2011 2010 2009 earnings was a result of an increase in the level of those Earnings per common share (attributable to PPG) earnings and a shift in the geographic mix of those Net income (attributable to PPG) $1,095 $769 $336 earnings to countries with lower statutory tax rates. U.S. tax incentives include the R&D credit, the U.S. Weighted average common shares outstanding 157.3 164.5 164.8 manufacturing deduction and the tax free Medicare Part D subsidy. Earnings per common share (attributable to PPG): The 2011 increase in the U.S. tax benefit on foreign Net income (attributable to PPG) $6.96 $4.67 $2.04 dividends was due to the tax efficient repatriation of high taxed foreign earnings resulting from tax planning. Earnings per common share - assuming dilution (attributable to PPG) The 2010 effective tax rate was increased because Net income (attributable to PPG) $1,095 $769 $336 PPG recorded a one-time, aftertax charge in the first Weighted average common shares quarter of 2010 of $85 million, or 51 cents per share, as a outstanding 157.3 164.5 164.8 result of a change in U.S. tax law included in the U.S. Effect of dilutive securities: Patient Protection and Affordable Care Act enacted in Stock options 1.1 0.8 0.1 March 2010. Under the prior tax law, the total amount Other stock compensation plans 0.9 0.6 0.6 paid for prescription drug costs for retirees over the age of 65 was tax deductible. Beginning in 2013, however, these Potentially dilutive common shares 2.0 1.4 0.7 costs will only be deductible to the extent they exceed the Adjusted weighted average common shares amount of the annual subsidy PPG receives from the U.S. outstanding 159.3 165.9 165.5 government under Medicare Part D. As a result of this Earnings per common share - assuming change, the Company’s deferred tax asset, which reflects dilution (attributable to PPG): the future tax deductibility of these post retirement costs, Net income (attributable to PPG) $6.87 $4.63 $2.03 had to be reduced in the first quarter of 2010, the period that the change in the tax law was enacted, as required by the accounting guidance for income taxes. There were 0.6 million, 1.2 million and 6.2 million outstanding stock options excluded in 2011, 2010 and The filing of our 2008 U.S. federal income tax return 2009, respectively, from the computation of diluted in September 2009 increased our 2008 foreign sourced earnings per common share due to their anti-dilutive income for U.S. tax purposes which, in turn, led to a effect. decision in the fourth quarter of 2009 to pay dividends from several foreign subsidiaries prior to year end. The 13. Income Taxes benefit of the U.S. foreign tax credits associated with The following table presents a reconciliation of the those dividends lowered our 2009 effective tax rate. statutory U.S. corporate federal income tax rate to the Income before income taxes of the Company’s Company’s effective income tax rate: non-U.S. operations for 2011, 2010 and 2009 was $896 million, $793 million and $342 million, respectively. 2011 2010 2009 U.S. federal income tax rate 35.00% 35.00% 35.00% Changes in rate due to: U.S. State and local taxes 1.03 1.31 1.99 U.S. tax benefit on foreign dividends (1.04) 0.05 (3.05) Taxes on non-U.S. earnings (8.03) (8.11) (3.35) Tax benefit on non-U.S. restructuring costs — — 2.76 PPG dividends paid to the ESOP (0.43) (0.67) (1.61) U.S. tax incentives (1.67) (1.83) (1.16) Significant audit settlements (1.09) — (0.28) Other 0.34 (0.28) 0.60 One-time charge, tax law change — 6.57 — Effective income tax rate 24.11% 32.04% 30.90%50 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 53. Notes to the Consolidated Financial Statements The following table gives details of income tax which amounted to $2,920 million as of December 31,expense reported in the accompanying consolidated 2011 and $2,465 million as of December 31, 2010. Thesestatement of income. earnings are considered to be reinvested for an indefinite(Millions) 2011 2010 2009 period of time or will be repatriated when it is tax effective to do so. It is not practicable to determine theCurrent income tax expense U.S. federal $ 193 $ 62 $ 3 deferred tax liability on these undistributed earnings. Non-U.S. 176 170 129 The Company files federal, state and local income tax U.S. State and local 20 15 15 returns in numerous domestic and foreign jurisdictions. Total current income tax 389 247 147 In most tax jurisdictions, returns are subject toDeferred income tax expense examination by the relevant tax authorities for a number U.S. federal 11 70 53 of years after the returns have been filed. The Company is Non-U.S. (17) 2 (13) no longer subject to examinations by tax authorities in U.S. State and local 2 11 4 any major tax jurisdiction for years before 2003. One-time charge, tax law change — 85 — Additionally, the Internal Revenue Service has completed Total deferred income tax (4) 168 44 its examination of the Company’s U.S. federal income tax Total $ 385 $ 415 $ 191 returns filed for years through 2008. The examination of the Company’s U.S. federal income tax return for 2009 is Income tax payments in 2011, 2010 and 2009 totaled currently underway and is expected to be finalized during$353 million, $198 million and $197 million, 2012.respectively. The activity in the accrued liability for unrecognized Net deferred income tax assets and liabilities as of tax benefits for the three years ended December 31, 2011December 31, 2011 and 2010, were as follows: is as follows:(Millions) 2011 2010 (Millions) 2011 2010 2009Deferred income tax assets related to Balance at January 1 $111 $108 $ 99 Employee benefits $ 963 $ 809 Additions based on tax positions related to the Contingent and accrued liabilities 524 524 current year 15 7 19 Operating loss and other carry-forwards 183 125 Additions for tax positions of prior years 17 15 13 Inventories 29 36 Reductions for tax positions of prior years (19) (5) (8) Property 3 8 Derivatives 95 75 Reductions for expiration of the applicable statute of limitations (7) (6) (9) Other 97 118 Settlements (8) (2) (11) Valuation allowance (134) (83) Total 1,760 1,612 Currency (2) (6) 5Deferred income tax liabilities related to Balance at December 31 $107 $111 $108 Property 500 450 Intangibles 460 481 The amount of unrecognized tax benefits was $107 Employee benefits 64 57 million, $111 million and $108 million as of Other 63 66 December 31, 2011, 2010 and 2009, respectively. If recognized, $100 million, $103 million and $99 million Total 1,087 1,054 would impact the effective rate as of December 31, 2011, Deferred income tax assets – net $ 673 $ 558 2010 and 2009, respectively. The Company recognizes As of December 31, 2011, subsidiaries of the accrued interest and penalties related to unrecognized taxCompany had available net operating loss carryforwards benefits in income tax expense. The Company hadof approximately $581 million for income tax purposes, accrued as of December 31, 2011, 2010 and 2009, $15of which approximately $505 million has an indefinite million, $15 million and $13 million, respectively, forexpiration. The remaining $76 million expires between estimated interest and penalties on unrecognized taxthe years 2012 and 2026. The tax effected amount of the benefits. The Company recognized no expense in 2011net operating loss carryforwards is $168 million. A related to estimated interest and penalties. The Companyvaluation allowance has been established for carry- recognized $2 million and $3 million of expense forforwards at December 31, 2011, when the ability to utilize estimated interest and penalties during the years endedthem is not likely. December 31, 2010 and 2009, respectively. No deferred U.S. income taxes have been provided on While it is expected that the amount of unrecognizedcertain undistributed earnings of non-U.S. subsidiaries, tax benefits will change in the next 12 months, 2011 PPG ANNUAL REPORT AND FORM 10-K 51
  • 54. Notes to the Consolidated Financial Statements quantification of an estimated range cannot be made at recognized a curtailment loss and special termination this time. The Company does not expect this change to benefits associated with these plan amendments of $5 have a significant impact on the results of operations or million in 2011. The Company plans to continue financial position of the Company, however, actual reviewing and potentially changing other PPG defined settlements may differ from amounts accrued. benefit plans in the future. 14. Pensions and Other Postretirement Benefits During 2010, PPG made changes to certain of its defined benefit pension plans to shift pension benefits for Defined Benefit Plans future service to defined contribution pension plans. Such PPG has defined benefit pension plans that cover changes enacted in 2010 were for the defined benefit plan certain employees worldwide. The principal defined in the United Kingdom and for certain of our bargaining benefit pension plans are those in the U.S., Canada, the unit plans in the U.S. Changes that were effective prior to Netherlands and the U.K. which, in the aggregate, December 31, 2010 were reflected in the measurement of represent 99% of the market value of plan assets at the year end projected benefit obligation as of December 31, 2011. PPG also sponsors welfare benefit December 31, 2010. plans that provide postretirement medical and life insurance benefits for certain U.S. and Canadian Postretirement medical employees and their dependents. These programs require The Medicare Act of 2003 introduced a prescription retiree contributions based on retiree-selected coverage drug benefit under Medicare (“Medicare Part D”) that levels for certain retirees and their dependents and provides several options for Medicare eligible participants provide for sharing of future benefit cost increases and employers, including a federal subsidy payable to between PPG and participants based on management companies that elect to provide a retiree prescription drug discretion. The Company has the right to modify or benefit which is at least actuarially equivalent to Medicare terminate certain of these benefit plans in the future. Part D. During the third quarter of 2004, PPG concluded Salaried and certain hourly employees hired on or after its evaluation of the provisions of the Medicare Act and October 1, 2004, are not eligible for postretirement decided to maintain its retiree prescription drug program medical benefits. Salaried employees hired, rehired or and to take the subsidy available under the Medicare Act. transferred to salaried status on or after January 1, 2006, The federal subsidy related to providing a retiree and certain hourly employees hired in 2006 or thereafter prescription drug benefit is not subject to U.S. federal are eligible to participate in a defined contribution income tax and is recorded as a reduction in annual net retirement plan. These employees are not eligible for periodic benefit cost of other postretirement benefits. defined benefit pension plan benefits. In August 2007, the Company’s U.S. other Plan Design Changes postretirement benefit plan was amended to consolidate In January 2011, the Company approved an the number of retiree health care options available for amendment to one of its U.S. defined benefit pension certain retirees and their dependents. The amendment plans that represents 77% of the total U.S. projected was effective January 1, 2008. The amended plan also benefit obligation at December 31, 2011 and 2010. This offered a fully-insured Medicare Part D prescription drug change will result in employees no longer accruing plan for certain retirees and their dependents. As such, benefits under this plan either as of December 31, 2011 or beginning in 2008 PPG was no longer eligible to receive December 31, 2020 depending upon the employee’s the subsidy provided under the Medicare Act of 2003 for combined age and years of service to PPG. The affected these retirees and their dependents. employees will participate in the Company’s defined In October 2009, the Company decided, effective contribution retirement plan from the date their benefit January 1, 2010, to return to a self-insured Medicare Part under the defined benefit plan is frozen. The Company D prescription drug plan for certain retirees and their remeasured the projected benefit obligation of the dependents that is at least actuarially equivalent to amended plan, which resulted in an approximate $65 Medicare Part D. As such, effective January 1, 2010, PPG million reduction in the liability and lowered 2011 was eligible to receive the subsidy provided under the pension expense by approximately $12 million. The Medicare Act of 2003 for these retirees and their Company made similar changes to certain other U.S. dependents. defined benefit pension plans in 2011. The Company52 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 55. Notes to the Consolidated Financial Statements The following table sets forth the changes in The aggregate PBO and fair value of plan assets (inprojected benefit obligations (“PBO”) (as calculated as of millions) for the pension plans with PBO in excess of planDecember 31), plan assets, the funded status and the assets were $5,164 and $4,196, respectively, as ofamounts recognized in the accompanying consolidated December 31, 2011, and $4,952 and $4,127, respectively,balance sheet for the Company’s defined benefit pension as of December 31, 2010. The aggregate ABO and fairand other postretirement benefit plans: value of plan assets (in millions) for the pension plans Other with ABO in excess of plan assets were $4,771 and Postretirement Pensions Benefits $3,992, respectively, as of December 31, 2011, and $4,494(Millions) 2011 2010 2011 2010 and $3,918, respectively, as of December 31, 2010.Projected benefit Amounts (pretax) not yet reflected in net periodicobligation, January 1 $4,952 $4,545 $ 1,235 $ 1,089 benefit cost and included in accumulated otherService cost 63 64 19 19 comprehensive loss include the following:Interest cost 254 249 63 64 Other PostretirementPlan amendments — — 22 (54) (Millions) Pensions BenefitsActuarial losses 444 410 126 183 2011 2010 2011 2010Benefits paid (281) (270) (64) (71) Accumulated net actuarial losses $2,052 $1,911 $ 571 $ 476Foreign currency translation Accumulated prior service costadjustments (37) (48) (3) 5 (credit) (2) 1 (37) (71)Curtailment and special Total $2,050 $1,912 $ 534 $ 405 termination benefits (58) — — —Other (4) 2 (4) — The accumulated net actuarial losses for pensions relate primarily to the actual return on plan assets being Projected benefit less than the expected return on plan assets in 2000-2002, obligation, December 31 $5,333 $4,952 $ 1,394 $ 1,235 and 2008 and a decline in the discount rate since 1999.Market value of plan The accumulated net actuarial losses for otherassets, January 1 $4,127 $3,594 postretirement benefits relate primarily to actualActual return on plan assets 426 478 healthcare costs increasing at a higher rate than assumedCompany contributions 121 340 during the 2001-2003 period and the decline in theParticipant contributions 2 3 discount rate. Since the accumulated net actuarial losses exceed 10 percent of the higher of the market value ofBenefits paid (262) (249) plan assets or the PBO at the beginning of the year,Plan expenses and other-net (2) (6) amortization of such excess over the average remainingForeign currency translation service period of active employees expected to receiveadjustments (30) (33) benefits has been included in net periodic benefit costs for Market value of plan pension and other postretirement benefits in each of the assets, December 31 $4,382 $4,127 last three years. The decrease in 2011 in the accumulatedFunded Status $ (951) $ (825) $(1,394) $(1,235) prior service credit for other postretirement benefitsAmounts recognized in the relates to several amendments to these plans approved byConsolidated Balance Sheet: the Company during 2010. Accumulated prior serviceOther assets (long-term) 23 — — — cost (credit) is amortized over the future service periods of those employees who are active at the dates of the planAccounts payable and accrued amendments and who are expected to receive benefits.liabilities (13) (13) (87) (84)Accrued pensions (961) (812) — — The increase in accumulated other comprehensive loss (pretax) in 2011 relating to defined benefit pensionOther postretirement benefits — — (1,307) (1,151) and other postretirement benefits consists of: Net liability recognized $ (951) $ (825) $(1,394) $(1,235) Other Postretirement The PBO is the actuarial present value of benefits (Millions) Pensions Benefitsattributable to employee service rendered to date, Net actuarial loss arising during the year 330 126including the effects of estimated future pay increases. New prior service (credit) cost (4) 21The accumulated benefit obligation (“ABO”) is the Amortization of actuarial loss (120) (30)actuarial present value of benefits attributable to Amortization of prior service (cost) credit (1) 12employee service rendered to date, but does not include Impact of curtailment (62) —the effects of estimated future pay increases. The ABO for Foreign currency translation adjustments andall defined benefit pension plans as of December 31, 2011 other (5) —and 2010 was $5,117 million and $4,695 million, Net change 138 129respectively. 2011 PPG ANNUAL REPORT AND FORM 10-K 53
  • 56. Notes to the Consolidated Financial Statements The net actuarial loss arising during 2011 related to The following weighted average assumptions were the Company’s pension plans was primarily due to a used to determine the net periodic benefit cost for the decrease in the discount rate, partially offset by greater Company’s defined benefit pension and other than expected plan asset returns. The net actuarial loss postretirement benefit plans for the three years in the arising during 2011 related to the Company’s other period ended December 31, 2011: postretirement benefit plans resulted from a decrease in 2011 2010 2009 the discount rate. Discount rate 5.3% 5.7% 6.1% The estimated amounts of accumulated net actuarial Expected return on assets 7.6% 7.8% 7.9% loss and prior service cost for the defined benefit pension Rate of compensation increase 3.8% 3.9% 3.9% plans that will be amortized from accumulated other These assumptions for each plan are reviewed on an comprehensive income into net periodic benefit cost in annual basis. In determining the expected return on plan 2012 are $137 million and $1 million, respectively. The asset assumption, the Company evaluates the mix of estimated amounts of accumulated net actuarial loss and investments that comprise each plan’s assets and external prior service (credit) for the other postretirement benefit forecasts of future long-term investment returns. The plans that will be amortized from accumulated other Company compares the expected return on plan assets comprehensive (loss) income into net periodic benefit assumption to actual historic returns to ensure cost in 2012 are $39 million and $(9) million, reasonability. The expected return on plan assets respectively. assumption to be used in determining 2012 net periodic Net periodic benefit cost for the three years ended pension expense will be 6.8 percent (7.5 percent for the December 31, 2011, includes the following: U.S. plans). Other At December 31, 2010, the Company updated the Postretirement Pensions Benefits mortality table used to calculate its U.S. defined benefit (Millions) 2011 2010 2009 2011 2010 2009 pension and other postretirement benefit liabilities. Service cost $ 63 $ 64 $ 67 $ 19 $19 $ 20 Previously, the Company had used the mortality table Interest cost 254 249 244 63 64 68 known as RP 2000, projected to 2006 and now uses the Expected return on plan RP 2000 table projected to 2017. This updated table assets (312) (278) (228) — — — reflects improvements in mortality rates. Amortization of prior The weighted-average healthcare cost trend rate service cost (credit) 1 5 6 (12) (5) (13) (inflation) used for 2011 was 6.3 percent declining to 4.5 Amortization of actuarial percent in the year 2024. For 2012, the assumed losses 120 121 129 30 19 34 weighted-average healthcare cost trend rate used will be Curtailments and special 6.3 percent declining to 4.5 percent in the year 2024. termination benefits 5 — — — — — These assumptions are reviewed on an annual basis. In Net periodic benefit selecting rates for current and long-term health care cost cost $ 131 $ 161 $ 218 $100 $97 $109 assumptions, the Company takes into consideration a number of factors including the Company’s actual health Net periodic benefit cost is included in Cost of sales, care cost increases, the design of the Company’s benefit exclusive of depreciation and amortization, Selling, programs, the demographics of the Company’s active and general and administrative and Research and development retiree populations and external expectations of future in the accompanying consolidated statement of income. medical cost inflation rates. If these 2012 health care cost Assumptions trend rates were increased or decreased by one percentage The following weighted average assumptions were point per year, such increase or decrease would have the used to determine the benefit obligation for the following effects: Company’s defined benefit pension and other One-Percentage Point (Millions) Increase Decrease postretirement plans as of December 31, 2011 and 2010: Increase (decrease) in the aggregate of service 2011 2010 and interest cost components of annual expense $ 10 $ (8) Discount rate 4.6% 5.3% Increase (decrease) in the benefit obligation $144 $(120) Rate of compensation increase 3.9% 3.8%54 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 57. Notes to the Consolidated Financial StatementsContributions help fund the cost of benefits promised under the plans On August 17, 2006, the Pension Protection Act of 2006 while mitigating investment risk. The asset allocation(“PPA”) was signed into law, changing the funding targets established for each pension plan are intended torequirements for the Company’s U.S. defined benefit pension diversify the investments among a variety of assetplans beginning in 2008. Under the requirements of the PPA, categories and among a variety of individual securitiesPPG did not have to make a mandatory contribution to these within each asset category to mitigate investment risk andplans in 2011 and does not expect to have a mandatory provide each plan with sufficient liquidity to fund thecontribution to these plans in 2012 because of management’s payment of pension benefits to current retirees.intent to make voluntary contributions. The following summarizes the weighted average PPG made voluntary contributions to its U.S. defined target pension plan asset allocation as of December 31,benefit pension plans of $50 million and $250 million in 2011 and 2010 for all PPG defined benefit plans:2011 and 2010, respectively. PPG made contributions to its Asset Category Dec. 31, 2011 Dec. 31, 2010non-U.S. defined benefit pension plans in 2011 of Equity securities 40–75% 40-75%$71 million and approximately $85 million in 2010, some Debt securities 25–60% 25-60%of which were required by local funding requirements. PPG Real estate 0–10% 0-10%expects to make voluntary contributions of up to Other 0–10% 0-10%$60 million to its U.S. plans and mandatory contributionsto its non-U.S. plans of approximately $90 million in 2012. The fair values of the Company’s pension plan assetsBenefit Payments at December 31, 2011, by asset category, are as follows: The estimated pension benefits to be paid under the (Millions) Level 1(1) Level 2(1) Level 3(1) TotalCompany’s defined benefit pension plans during the next Asset Categoryfive years are (in millions) $272 in 2012, $340 in 2013, Equity securities:$314 in 2014, $403 in 2015 and $297 in 2016 and are U.S.expected to aggregate $1,485 million for the five years Large cap $ 24 $ 318 $ — $ 342thereafter. The estimated other postretirement benefits tobe paid during the next five years are (in millions) $88 in Small cap 125 80 — 2052012, $86 in 2013, $87 in 2014, $88 in 2015 and $89 in PPG common stock 151 — — 1512016 and are expected to aggregate $449 million for the Non-U.S.five years thereafter. The Company expects to receive Developed andbetween $10 million and $13 million of subsidy under the emerging markets(2) 63 577 — 640Medicare Act of 2003 during each of the next five years Debt securities:and an aggregate amount of $84 million for the five years Money market 270 — — 270thereafter. The 2011 subsidy under the Medicare Act of Corporate(3)2003 of $7 million was received as of December 31, 2011. U.S.(4) 672 68 — 740Plan Assets Developed and Each PPG sponsored defined benefit pension plan is emerging markets(2) 223 115 — 338managed in accordance with the requirements of local Diversified (5) — 339 — 339laws and regulations governing defined benefit pension Governmentplans for the exclusive purpose of providing pension U.S.(4) 510 — — 510benefits to participants and their beneficiaries. Investment Developed markets 148 119 — 267committees comprised of PPG managers have fiduciary Other (6) 171 22 28 221responsibility to oversee the management of pension plan Real estate, hedge funds, andassets by third party asset managers. Pension plan assets other 41 73 245 359are held in trust by financial institutions and managed on Total $2,398 $1,711 $273 $4,382a day-to-day basis by the asset managers. The assetmanagers receive a mandate from each investment (1) These levels refer to the accounting guidance on fair value measurement described in Note 9, “Fair Value Measurement.”committee that is aligned with the asset allocation targets (2) These amounts represents holdings in investment grade debt or equityestablished by each investment committee to achieve the securities of issuers in both developed markets and emerging economies.plan’s investment strategies. The performance of the asset (3) This category represents investment grade debt securities from a diverse set of industry issuers.managers is monitored and evaluated by the investment (4) These investments are primarily long duration fixed income securities.committees throughout the year. (5) This category represents commingled funds invested in diverse portfolios of debt securities. Pension plan assets are invested to generate (6) This category includes mortgage-backed and asset backed debtinvestment earnings over an extended time horizon to securities, municipal bonds and other debt securities. 2011 PPG ANNUAL REPORT AND FORM 10-K 55
  • 58. Notes to the Consolidated Financial Statements The fair values of the Company’s pension plan assets Real Estate properties are externally appraised at least at December 31, 2010, by asset category, are as follows: annually by reputable, independent appraisal firms. (Millions) Level 1(1) Level 2(1) Level 3(1) Total Property valuations are also reviewed on a regular basis Asset Category and are adjusted if there has been a significant change in Equity securities: circumstances related to the property since the last valuation. U.S. Large cap $ 93 $ 679 $ — $ 772 Other debt securities consist of insurance contracts, which are externally valued by insurance companies Small cap 135 85 — 220 based on the present value of the expected future cash PPG common stock 152 — — 152 flows. Hedge funds consist of a wide range of investments Non-U.S. which target a relatively stable investment return. The Developed and underlying funds are valued at different frequencies, some emerging markets 149 490 — 639 monthly and some quarterly, based on the value of the Debt securities: underlying investments. Other assets consist primarily of Money market 137 — — 137 small investments in private equity. Corporate (2) Other Plans U.S. 666 — — 666 PPG has retained certain liabilities for pension and Western Europe 1 167 — 168 post-employment benefits earned for service up to the Diversified(3) 49 173 — 222 2008 date of sale of its former automotive glass and Government service business, totaling approximately $1,011 million U.S. 433 — — 433 and $956 million at December 31, 2011 and 2010, Western Europe 19 281 — 300 respectively, for employees who were active as of the Other(4) 225 7 39 271 divestiture date and for individuals who were retirees of Real estate and other 1 7 139 147 the business as of the divestiture date. PPG recognized expense of approximately $35 million and $30 million Total $2,060 $1,889 $178 $4,127 related to these obligations in 2011 and 2010, (1) These levels refer to the accounting guidance on fair value measurement respectively. described in Note 9, “Fair Value Measurement.” (2) This category represents investment grade debt securities from a diverse Pittsburgh Glass Works LLC ceased production at its set of industry issuers. Oshawa, Canada plant in 2009 and closed its (3) This category represents commingled funds invested in diverse Hawkesbury, Canada plant in 2010. Under Canadian portfolios of debt securities. (4) This category includes mortgage-backed and asset backed debt pension regulations, these plant closures will result in securities, municipal bonds and other debt securities. partial wind-ups of the pension plans for former employees at these plants, the liability for which was The change in the fair value of the Company’s Level 3 retained by PPG. Each of these partial windups will result pension assets for the years ended December 31, 2011 and in settlement charges against PPG earnings and require 2010 was as follows: cash contributions to the plans. The final settlement Hedge Funds charge and cash amounts will be determined following the Real Other Debt & (Millions) Estate Securities Other assets Total required review of the partial wind-ups by the Canadian Balance, January 1, 2010 $ 87 $ 40 $— $127 pension authorities. The amount of each pretax charge Realized gain/(loss) 2 1 — 3 and the cash contribution is currently estimated to be in the range of $20-$30 million and $10-$15 million, Unrealized gain/(loss) for positions still held 13 — — 13 respectively. The proposed effective dates of the partial windups related to the Oshawa and Hawkesbury plant Transfers in/(out) 15 (1) 22 36 closures are February 27, 2009 and August 31, 2010, Currency — (1) — (1) respectively. Cash contributions are currently being made Balance, December 31, to the plans based on estimated cash requirements and 2010 $117 $ 39 $22 $178 must be completed by the end of the five year period Realized gain/(loss) (1) — — (1) following the proposed effective dates of the partial Unrealized gain/(loss) for windups. The settlement charges will be recorded positions still held 15 — (2) 13 following the approval of the partial windups by the Transfers in/(out) 25 (11) 69 83 Canadian pension authorities and when the related cash Currency — — — — contributions are completed. Balance, December 31, The Company recognized expense for defined 2011 $156 $ 28 $89 $273 contribution pension plans in 2011, 2010 and 2009 of $3856 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 59. Notes to the Consolidated Financial Statementsmillion, $31 million and $25 million, respectively. As of million and $63 million as of December 31, 2011 andDecember 31, 2011 and 2010, the Company’s liability for 2010, respectively.contributions to be made to the defined contribution 15. Commitments and Contingent Liabilitiespension plans was $13 million and $18 million, PPG is involved in a number of lawsuits and claims,respectively. both actual and potential, including some that it has The Company has a deferred compensation plan for asserted against others, in which substantial monetarycertain key managers which allows them to defer a damages are sought. These lawsuits and claims, the mostportion of their compensation in a phantom PPG stock significant of which are described below, relate toaccount or other phantom investment accounts. The contract, patent, environmental, product liability,amount deferred earns a return based on the investment antitrust and other matters arising out of the conduct ofoptions selected by the participant. The amount owed to PPG’s current and past business activities. To the extentparticipants is an unfunded and unsecured general that these lawsuits and claims involve personal injury andobligation of the Company. Upon retirement, death, property damage, PPG believes it has adequate insurance;disability, termination of employment, scheduled however, certain of PPG’s insurers are contesting coveragepayment or unforeseen emergency, the compensation with respect to some of these claims, and other insurers,deferred and related accumulated earnings are distributed as they had prior to the asbestos settlement describedin accordance with the participant’s election in cash or in below, may contest coverage with respect to some of thePPG stock, based on the accounts selected by the asbestos claims if the settlement is not implemented.participant. PPG’s lawsuits and claims against others include claims The plan provides participants with investment against insurers and other third parties with respect toalternatives and the ability to transfer amounts between actual and contingent losses related to environmental,the phantom non-PPG stock investment accounts. To asbestos and other matters.mitigate the impact on compensation expense of changes The results of any future litigation and the abovein the market value of the liability, the Company has lawsuits and claims are inherently unpredictable.purchased a portfolio of marketable securities that mirror However, management believes that, in the aggregate, thethe phantom non-PPG stock investment accounts selected outcome of all lawsuits and claims involving PPG,by the participants, except the money market accounts. including asbestos-related claims in the event theThese investments are carried at fair market value, and settlement described below does not become effective,the changes in market value of these securities are also will not have a material effect on PPG’s consolidatedincluded in earnings. Trading will occur in this portfolio financial position or liquidity; however, such outcometo align the securities held with the participant’s phantom may be material to the results of operations of anynon-PPG stock investment accounts, except the money particular period in which costs, if any, are recognized.market accounts. Antitrust Matters The cost of the deferred compensation plan, Several complaints were filed in late 2007 and earlycomprised of dividend equivalents accrued on the 2008 in different federal courts naming PPG and other flatphantom PPG stock account, investment income and the glass producers as defendants in purported antitrust classchange in market value of the liability, was expense in actions. The complaints alleged that the defendants2011, 2010, and 2009 of $2 million, $10 million and conspired to fix, raise, maintain and stabilize the price$15 million, respectively. These amounts are included in and the terms and conditions of sale of flat glass in the“Selling, general and administrative” in the accompanying United States in violation of federal antitrust laws. In Juneconsolidated statement of income. The change in market 2008, these cases were consolidated into one federal courtvalue of the investment portfolio was income of $1 class action in Pittsburgh, Pa. In the consolidatedmillion, $9 million, and $13 million in 2011, 2010, and complaint, the plaintiffs sought a permanent injunction2009, respectively, of which $0.8 million, $0.4 million enjoining the defendants from future violations of theand $0.4 million was realized gains, and is also included federal antitrust laws, unspecified compensatory damages,in “Selling, general and administrative.” including treble damages, and the recovery of their The Company’s obligations under this plan, which litigation costs. Many allegations in the complaints wereare included in “Accounts payable and accrued liabilities” similar to those raised in proceedings by the Europeanand “Other liabilities” in the accompanying consolidated Commission in which fines were levied against other flatbalance sheet, totaled $95 million and $99 million as of glass producers arising out of alleged antitrust violations.December 31, 2011 and 2010, respectively, and the PPG is not involved in any of the proceedings in Europe.investments in marketable securities, which are included PPG divested its European flat glass business in 1998. Ain “Investments” and “Other current assets” in the complaint containing allegations substantially similar toaccompanying consolidated balance sheet, were $59 the U.S. litigation and seeking compensatory and punitive 2011 PPG ANNUAL REPORT AND FORM 10-K 57
  • 60. Notes to the Consolidated Financial Statements damages in amounts to be determined by the court was relates to allegations by plaintiffs that PPG should be filed in the Superior Court in Windsor, Ontario, Canada liable for injuries involving asbestos-containing thermal in August 2008 regarding the sale of flat glass in Canada. insulation products, known as Unibestos, manufactured In the third quarter of 2010, the other defendants in these and distributed by Pittsburgh Corning Corporation cases agreed to settlements. Although PPG is aware of no (“PC”). PPG and Corning Incorporated are each wrongdoing or conduct on its part in the operation of its 50 percent shareholders of PC. PPG has denied flat glass business that violated any antitrust laws, in responsibility for, and has defended, all claims for any order to avoid the ongoing expense of this protracted injuries caused by PC products. As of the April 16, 2000 case, as well as the risks and uncertainties associated with order which stayed and enjoined asbestos claims against complex litigation involving jury trials, in the third PPG (as discussed below), PPG was one of many quarter of 2010 PPG reached an agreement in principle to defendants in numerous asbestos-related lawsuits resolve these flat glass antitrust matters for approximately involving approximately 114,000 claims served on PPG. $6 million. Final settlement agreements were executed in During the period of the stay, PPG generally has not been the fourth quarter of 2010. The court has approved the aware of the dispositions, if any, of these asbestos claims. settlements and distribution of the funds is expected to Background of PC Bankruptcy Plan of Reorganization occur in 2012. On April 16, 2000, PC filed for Chapter 11 In 2010, Transitions Optical, Inc. (“TOI”), a Bankruptcy in the U.S. Bankruptcy Court for the Western consolidated subsidiary of the Company, entered into a District of Pennsylvania located in Pittsburgh, Pa. settlement agreement, without admitting liability, with Accordingly, in the first quarter of 2000, PPG recorded an the Federal Trade Commission, which had alleged that after-tax charge of $35 million for the write-off of all of its TOI violated Section 5 of the Federal Trade Commission investment in PC. As a consequence of the bankruptcy Act. Following the announcement of the settlement with filing and various motions and orders in that proceeding, the Federal Trade Commission, 30 private putative class the asbestos litigation against PPG (as well as against PC) cases were filed against TOI, alleging that it has has been stayed and the filing of additional asbestos suits monopolized and/or conspired to monopolize the market against them has been enjoined, until 30 days after the for photochromic lenses. All of the federal actions have effective date of a confirmed plan of reorganization for PC been transferred and centralized in the Middle District of substantially in accordance with the settlement Florida (the “MDL Action”). Amended complaints in the arrangement among PPG and several other parties MDL Action were filed in November and December 2010. discussed below. The stay may be terminated if the In late 2011, the court ruled on TOI’s motion to dismiss Bankruptcy Court determines that such a plan will not be and allowed the plaintiffs to file new or further amended confirmed, or the settlement arrangement set forth below complaints. is not likely to be consummated. Plaintiffs in the MDL Action include Insight Equity On May 14, 2002, PPG announced that it had agreed A.P. X, LP, d/b/a Vision-Ease Lens Worldwide, Inc., which with several other parties, including certain of its has sued on its own behalf, and putative classes of “direct insurance carriers, the official committee representing purchasers,” including laboratories and retailers (the asbestos claimants in the PC bankruptcy, and the legal “Lab/Retailer Plaintiffs”), and “indirect purchasers,” representatives of future asbestos claimants appointed in consisting of end-user consumers. the PC bankruptcy, on the terms of a settlement Plaintiffs in the MDL Action generally allege that arrangement relating to certain asbestos claims against TOI’s exclusive dealing arrangements resulted in higher PPG and PC (the “2002 PPG Settlement Arrangement”). prices and seek lost profits and damages determined by On March 28, 2003, Corning Incorporated the price premium attributable to wrongful exclusive announced that it had separately reached its own deals. The damages sought are subject to trebling. The arrangement with the representatives of asbestos Lab/Retailer Plaintiffs also allege that TOI and certain claimants for the settlement of certain asbestos claims affiliates of Essilor International SA conspired with against Corning Incorporated and PC (the “2003 Corning respect to the wrongful exclusive dealing arrangements. Settlement Arrangement”). Briefing with respect to class certification is expected to The terms of the 2002 PPG Settlement Arrangement be completed in late 2012. TOI believes it has meritorious and the 2003 Corning Settlement Arrangement were defenses and continues to defend all of the above- incorporated into a bankruptcy reorganization plan for PC described actions vigorously. along with a disclosure statement describing the plan, Asbestos Matters which PC filed with the Bankruptcy Court on April 30, For over 30 years, PPG has been a defendant in 2003. Amendments to the plan and disclosure statement lawsuits involving claims alleging personal injury from were subsequently filed. On November 26, 2003, after exposure to asbestos. Most of PPG’s potential exposure considering objections to the second amended disclosure58 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 61. Notes to the Consolidated Financial Statementsstatement and plan of reorganization, the Bankruptcy the Effective Date to the Trust, which would haveCourt entered an order approving such disclosure provided the sole source of payment for all present andstatement and directing that it be sent to creditors, future asbestos bodily injury claims against PPG, itsincluding asbestos claimants, for voting. In March 2004, subsidiaries or PC alleged to be caused by thethe second amended PC plan of reorganization (the manufacture, distribution or sale of asbestos products by“second amended PC plan of reorganization”) received these companies. PPG would have conveyed the followingthe required votes to approve the plan with a channeling assets to the Trust: (i) the stock it owns in PC andinjunction for present and future asbestos claimants Pittsburgh Corning Europe, (ii) 1,388,889 shares of PPG’sunder §524(g) of the Bankruptcy Code. After voting common stock and (iii) aggregate cash payments to theresults for the second amended PC plan of reorganization Trust of approximately $998 million, payable according towere received, the Bankruptcy Court judge conducted a a fixed payment schedule over 21 years, beginning onhearing regarding the fairness of the settlement, including June 30, 2003, or, if later, the Effective Date. PPG wouldwhether the plan would be fair with respect to present have had the right, in its sole discretion, to prepay theseand future claimants, whether such claimants would be cash payments to the Trust at any time at a discount ratetreated in substantially the same manner, and whether the of 5.5 percent per annum as of the prepayment date. Inprotection provided to PPG and its participating insurers addition to the conveyance of these assets, PPG wouldwould be fair in view of the assets they would convey to have paid $30 million in legal fees and expenses on behalfthe asbestos settlement trust (the “Trust”) to be of the Trust to recover proceeds from certain historicalestablished as part of the second amended PC plan of insurance assets, including policies issued by certainreorganization. At that hearing, creditors and other parties insurance carriers that were not participating in thein interest raised objections to the second amended PC settlement, the rights to which would have been assignedplan of reorganization. Following that hearing, the to the Trust by PPG.Bankruptcy Court scheduled oral arguments for the Under the proposed 2002 PPG Settlementcontested items. Arrangement, PPG’s participating historical insurance The Bankruptcy Court heard oral arguments on the carriers would have made cash payments to the Trust ofcontested items on November 17-18, 2004. At the approximately $1.7 billion between the Effective Date andconclusion of the hearing, the Bankruptcy Court agreed to 2023. These payments could also have been prepaid to theconsider certain post-hearing written submissions. In a Trust at any time at a discount rate of 5.5 percent perfurther development, on February 2, 2005, the annum as of the prepayment date. In addition, asBankruptcy Court established a briefing schedule to referenced above, PPG would have assigned to the Trustaddress whether certain aspects of a decision of the U.S. its rights, insofar as they related to the asbestos claims toThird Circuit Court of Appeals in an unrelated case had have been resolved by the Trust, to the proceeds ofany applicability to the second amended PC plan of policies issued by certain insurance carriers that were notreorganization. Oral arguments on these matters were participating in the 2002 PPG Settlement Arrangementsubsequently held in March 2005. During an omnibus and from the estates of insolvent insurers and statehearing on February 28, 2006, the Bankruptcy Court insurance guaranty funds.judge stated that she was prepared to rule on the PC plan Under the proposed 2002 PPG Settlementof reorganization in the near future, provided certain Arrangement, PPG would have granted asbestos releasesamendments were made to the plan. Those amendments to all participating insurers, subject to a coverage-in-placewere filed, as directed, on March 17, 2006. After further agreement with certain insurers for the continuingconferences and supplemental briefings, in December coverage of premises claims (discussed below). PPG2006, the court denied confirmation of the second would have granted certain participating insurers fullamended PC plan of reorganization, on the basis that the policy releases on primary policies and full productplan was too broad in the treatment of allegedly liability releases on excess coverage policies. PPG wouldindependent asbestos claims not associated with PC. have also granted certain other participating excessTerms of 2002 PPG Settlement Arrangement insurers credit against their product liability coverage PPG had no obligation to pay any amounts under the limits.2002 PPG Settlement Arrangement until 30 days after the If the second amended PC plan of reorganizationsecond amended PC plan of reorganization was finally incorporating the terms of the 2002 PPG Settlementapproved by an appropriate court order that was no Arrangement and the 2003 Corning Settlementlonger subject to appellate review (the “Effective Date”). Arrangement had been approved by the BankruptcyIf the second amended PC plan of reorganization had Court, the Court would have entered a channelingbeen approved as proposed, PPG and certain of its injunction under §524(g) and other provisions of theinsurers (along with PC) would have made payments on Bankruptcy Code, prohibiting present and future 2011 PPG ANNUAL REPORT AND FORM 10-K 59
  • 62. Notes to the Consolidated Financial Statements claimants from asserting bodily injury claims after the denying confirmation of the third amended PC plan of Effective Date against PPG or its subsidiaries or PC reorganization. Although denying confirmation, PPG relating to the manufacture, distribution or sale of believes that the decision viewed favorably many features asbestos-containing products by PC or PPG or its of that plan. Several parties filed motions for subsidiaries. The injunction would have also prohibited reconsideration of specific aspects of the Bankruptcy codefendants in those cases from asserting claims against Court’s ruling. PPG filed a motion jointly with PC, PPG for contribution, indemnification or other recovery. Corning Incorporated, the official committee representing All such claims would have been filed with the Trust and asbestos claimants, and the legal representatives of future only paid from the assets of the Trust. asbestos claimants, and requested a deferred hearing and briefing schedule in view of potential plan amendments Modified Third Amended PC Plan of Reorganization that might be considered in response to the June 16, 2011 To address the issues raised by the Bankruptcy Court ruling. Those amendments, along with other technical in its December 2006 ruling, the interested parties amendments, were filed on September 23, 2011. Further, engaged in extensive negotiations regarding the terms of a PPG and other interested parties have had settlement third amended PC plan of reorganization, including negotiations with the remaining objectors. The September modifications to the 2002 PPG Settlement Arrangement. 23, 2011 amendments have been the subject of briefings A modified third amended PC plan of reorganization (the and of hearings before the Bankruptcy Court, the most “third amended PC plan of reorganization”), including a recent of which was held on December 14, 2011. The modified PPG settlement arrangement (the “2009 PPG September 23, 2011 amendments will be the subject of Settlement Arrangement”), was filed with the Bankruptcy further briefings and of hearings before the Bankruptcy Court on January 29, 2009. The parties also filed a Court on February 17, 2012. If the Bankruptcy Court disclosure statement describing the third amended PC ultimately finds the third amended PC plan of plan of reorganization with the court. The third amended reorganization, as amended, to be acceptable, after PC plan of reorganization also includes a modified considering any objections to the amendments, the settlement arrangement of Corning Incorporated. Bankruptcy Court will enter a confirmation order if all Several creditors and other interested parties filed requirements to confirm a plan of reorganization under objections to the disclosure statement. Those objections the Bankruptcy Code have been satisfied. Such an order were overruled by the Bankruptcy Court by order dated could be appealed to the U. S. District Court for the July 6, 2009 approving the disclosure statement. The third Western District of Pennsylvania. Assuming that the amended PC plan of reorganization and disclosure District Court approves a confirmation order, interested statement were then sent to creditors, including asbestos parties could appeal the order to the U.S. Third Circuit claimants, for voting. The report of the voting agent, filed Court of Appeals and subsequently could seek review by on February 18, 2010, revealed that all voting classes, the U.S. Supreme Court. including asbestos claimants, voted overwhelmingly in The 2009 PPG Settlement Arrangement will not favor of the third amended PC plan of reorganization, become effective until the third amended PC plan of which included the 2009 PPG Settlement Arrangement. In reorganization is finally approved by an appropriate court light of the favorable vote on the third amended PC plan order that is no longer subject to appellate review, and of reorganization, the Bankruptcy Court conducted a PPG’s initial contributions will not be due until hearing regarding the fairness of the proposed plan, 30 business days thereafter (the “Funding Effective including whether (i) the plan would be fair with respect Date”). to present and future claimants, (ii) such claimants would be treated in substantially the same manner, and (iii) the Asbestos Claims Subject to Bankruptcy Court’s Channeling protection provided to PPG and its participating insurers Injunction would be fair in view of the assets they would convey to If the third amended PC plan of reorganization is the Trust to be established as part of the third amended approved by the Bankruptcy Court and becomes effective, PC plan of reorganization. The hearing was held in June a channeling injunction will be entered under §524(g) of of 2010. The remaining objecting parties (a number of the Bankruptcy Code prohibiting present and future objections were resolved through plan amendments and claimants from asserting asbestos claims against PC. With stipulations filed before the hearing) appeared at the regard to PPG, the channeling injunction by its terms will hearing and presented their cases. At the conclusion of prohibit present and future claimants from asserting the hearing, the Bankruptcy Court established a briefing claims against PPG that arise, in whole or in part, out of schedule for its consideration of confirmation of the plan exposure to Unibestos, or any other asbestos or asbestos- and the objections to confirmation. That briefing was containing products manufactured, sold and/or completed and final oral arguments held in October 2010. distributed by PC, or asbestos on or emanating from any On June 16, 2011 the Bankruptcy Court issued a decision PC premises. The injunction by its terms will also60 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 63. Notes to the Consolidated Financial Statementsprohibit codefendants in these cases that are subject to the “premises claims”), which generally have been subject tochanneling injunction from asserting claims against PPG the stay imposed by the Bankruptcy Court. Historically, afor contribution, indemnification or other recovery. Such small proportion of the claims against PPG and itsinjunction will also preclude the prosecution of claims subsidiaries have been premises claims, and based uponagainst PPG arising from alleged exposure to asbestos or review and analysis, PPG believes that the number ofasbestos-containing products to the extent that a claimant premises claims currently comprises less than 2 percent ofis alleging or seeking to impose liability, directly or the total asbestos related claims against PPG. Beginning inindirectly, for the conduct of, claims against or demands late 2006, the Bankruptcy Court lifted the stay withon PC by reason of PPG’s: (i) ownership of a financial respect to certain premises claims against PPG. As ainterest in PC; (ii) involvement in the management of PC, result, PPG and its primary insurers have settledor service as an officer, director or employee of PC or a approximately 500 premises claims. PPG’s insurers agreedrelated party; (iii) provision of insurance to PC or a to provide insurance coverage for a major portion of therelated party; or (iv) involvement in a financial payments made in connection with the settled claims, andtransaction affecting the financial condition of PC or a PPG accrued the portion of the settlement amounts notrelated party. The foregoing PC related claims are referred covered by insurance. PPG, in conjunction with itsto as “PC Relationship Claims” and constitute, in PPG primary insurers as appropriate, evaluates the factual,management’s opinion, the vast majority of the pending medical, and other relevant information pertaining toasbestos personal injury claims against PPG. All claims additional claims as they are being considered forchanneled to the Trust will be paid only from the assets of potential settlement. The number of such claims underthe Trust. consideration for potential settlement, currently approximately 350, varies from time to time. PremisesAsbestos Claims Retained by PPG claims remain subject to the stay, as outlined above, The channeling injunction provided for under the although certain claimants have requested the Court tothird amended PC plan of reorganization will not extend lift the stay with respect to these claims and the stay hasto any claim against PPG that arises out of exposure to been lifted as to some claims. PPG believes that anyany asbestos or asbestos-containing products financial exposure resulting from such premises claims,manufactured, sold and/or distributed by PPG or its taking into account available insurance coverage, will notsubsidiaries that is not a PC Relationship Claim, and in have a material adverse effect on PPG’s consolidatedthis respect differs from the channeling injunction financial position, liquidity or results of operations.contemplated by the second amended PC plan ofreorganization filed in 2003. While management believes PPG’s Funding Obligationsthat the vast majority of the approximately 114,000 PPG has no obligation to pay any amounts under theclaims against PPG alleging personal injury from exposure third amended PC plan of reorganization until theto asbestos relate to products manufactured, distributed Funding Effective Date. If the third amended PC plan ofor sold by PC, the potential liability for any non-PC reorganization is approved, PPG and certain of its insurersRelationship Claims will be retained by PPG. Because a will make the following contributions to the Trust. On thedetermination of whether an asbestos claim is a non-PC Funding Effective Date, PPG will relinquish any claim toRelationship Claim would typically not be known until its equity interest in PC, convey the stock it owns inshortly before trial and because the filing and prosecution Pittsburgh Corning Europe and transfer 1,388,889 sharesof asbestos claims (other than certain premises claims) of PPG’s common stock or cash equal to the fair value ofagainst PPG has been enjoined since April 2000, the such shares as defined in the 2009 PPG Settlementactual number of non-PC Relationship Claims that may be Arrangement. PPG will make aggregate cash payments topending at the expiration of the stay or the number of the Trust of approximately $825 million, payableadditional claims that may be filed against PPG in the according to a fixed payment schedule over a periodfuture cannot be determined at this time. PPG does not ending in 2023. The first payment is due on the Fundingexpect the Bankruptcy Court to lift the stay until after Effective Date. PPG would have the right, in its soleconfirmation or rejection of the third amended PC plan of discretion, to prepay these cash payments to the Trust atreorganization. PPG intends to defend against all such any time at a discount rate of 5.5 percent per annum as ofclaims vigorously and their ultimate resolution in the the prepayment date. PPG’s historical insurance carrierscourt system is expected to occur over a period of years. participating in the third amended PC plan of In addition, similar to what was contemplated by the reorganization will also make cash payments to the Trustsecond amended PC plan of reorganization, the of approximately $1.7 billion between the Fundingchanneling injunction will not extend to claims against Effective Date and 2027. These payments could also bePPG alleging personal injury caused by asbestos on prepaid to the Trust at any time at a discount rate ofpremises owned, leased or occupied by PPG (so called 5.5 percent per annum as of the prepayment date. PPG 2011 PPG ANNUAL REPORT AND FORM 10-K 61
  • 64. Notes to the Consolidated Financial Statements will grant asbestos releases and indemnifications to all non-current portion of the liability totals $122 million at participating insurers, subject to amended December 31, 2011, and will be reported as expense in coverage-in-place arrangements with certain insurers for the consolidated statement of income over the period remaining coverage of premises claims. PPG will grant through 2023, as follows (in millions): certain participating insurers full policy releases on 2012 $ 14 primary policies and full product liability releases on excess coverage policies. PPG will also grant certain other 2013 14 participating excess insurers credit against their product 2014 – 2023 94 liability coverage limits. Total $122 PPG’s obligation under the 2009 PPG Settlement The following table summarizes the impact on PPG’s Arrangement at December 31, 2008 was $162 million less financial statements for the three years ended than the amount that would have been due under the December 31, 2011 resulting from the 2009 PPG 2002 PPG Settlement Arrangement. This reduction is Settlement Arrangement including the change in fair attributable to a number of negotiated provisions in the value of the stock to be transferred to the Trust and the 2009 PPG Settlement Arrangement, including the related equity forward instrument (see Note 11, provisions relating to the channeling injunction under “Derivative Financial Instruments and Hedge Activities”) which PPG retains liability for any non-PC Relationship and the increase in the net present value of the future Claims. PPG will retain such amount as a reserve for payments to be made to the Trust. asbestos-related claims that will not be channeled to the Trust, as this amount represents PPG’s best estimate of its Consolidated Balance Sheet liability for these claims. PPG does not have sufficient Equity current claim information or settlement history on which Asbestos Settlement Liability Forward Pretax (Asset) to base a better estimate of this liability, in light of the fact (Millions) Current Long-term Liability Charge that the Bankruptcy Court’s stay has been in effect since Balance as of January 1, 2009 $491 $244 $ 6 $ 4 2000. As a result, PPG’s reserve at December 31, 2011 and Change in fair value: 2010 for asbestos-related claims that will not be PPG stock 23 — — 23 channeled to the Trust is $162 million. This amount is Equity forward instrument — — (24) (24) included within Other liabilities on the accompanying Accretion of asbestos consolidated balance sheets. In addition, under the 2009 liability — 14 — 14 PPG Settlement Arrangement, PPG will retain for its own Reclassification 20 (20) — — account rights to recover proceeds from certain historical Balance as of and Activity for insurance assets, including policies issued by the year ended December 31, 2009 $534 $238 $(18) $ 13 non-participating insurers. Rights to recover these Change in fair value: proceeds would have been assigned to the Trust by PPG PPG stock 35 — — 35 under the 2002 PPG Settlement Arrangement. Equity forward Following the effective date of the third amended PC instrument — — (37) (37) Accretion of asbestos plan of reorganization and the lifting of the Bankruptcy liability — 14 — 14 Court stay, PPG will monitor the activity associated with Reclassification 9 (9) — — asbestos claims which are not channeled to the Trust Balance as of and Activity for pursuant to the third amended PC plan of reorganization, the year ended December 31, 2010 $578 $243 $(55) $ 12 and evaluate its estimated liability for such claims and Change in fair value: related insurance assets then available to the Company as PPG stock (1) — — (1) well as underlying assumptions on a periodic basis to Equity forward determine whether any adjustment to its reserve for these instrument — — (1) (1) claims is required. Accretion of asbestos liability — 14 — 14 Of the total obligation of $834 million and $821 Reclassification 16 (16) — — million under the 2009 PPG Settlement Arrangement at Balance as of and Activity December 31, 2011 and 2010, respectively, $593 million for the year ended and $578 million are reported as a current liabilities and December 31, 2011 $593 $241 $(56) $ 12 the present value of the payments due in the years 2013 to 2023 totaling $241 and 2012 to 2023 totaling $243 The fair value of the equity forward instrument is million are reported as a non-current liability in the included as an Other current asset as of December 31, accompanying consolidated balance sheet as of 2011 and 2010 in the accompanying consolidated balance December 31, 2011 and 2010. The future accretion of the sheet. Payments under the fixed payment schedule62 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 65. Notes to the Consolidated Financial Statementsrequire annual payments that are due each June. The effect on PPG’s financial position or liquidity; however,current portion of the asbestos settlement liability any such outcome may be material to the results ofincluded in the accompanying consolidated balance sheet operations of any particular period in which costs, if any,as of December 31, 2011, consists of all such payments are recognized. Management anticipates that therequired through June 2012, the fair value of PPG’s resolution of the Company’s environmental contingenciescommon stock and the value of PPG’s investment in will occur over an extended period of time.Pittsburgh Corning Europe. The amount due June 30,2013 of $17 million and the net present value of the As of December 31, 2011 and 2010, PPG had reservesremaining payments is included in the long-term asbestos for environmental contingencies totaling $226 millionsettlement liability in the accompanying consolidated and $272 million, respectively, of which $59 million andbalance sheet as of December 31, 2011. $83 million, respectively, were classified as current liabilities. The reserve at December 31, 2011 includedEnjoined Claims $129 million for environmental contingencies associated If the 2009 PPG Settlement Arrangement is not with PPG’s former chromium manufacturing plant inimplemented, for any reason, and the Bankruptcy Court Jersey City, N.J. (“Jersey City”), $50 million forstay expires, PPG intends to defend vigorously the environmental contingencies associated with thepending and any future asbestos claims, including PC Calcasieu River estuary located near the Lake Charles, La.Relationship Claims, asserted against it and its chlor-alkali plant and three operating plant sites in PPG’ssubsidiaries. PPG continues to assert that it is not chemicals business and $47 million for otherresponsible for any injuries caused by PC products, which environmental contingencies, including National Priorityit believes account for the vast majority of the pending List sites and legacy glass manufacturing sites. The reserveclaims against PPG. Prior to 2000, PPG had never been at December 31, 2010 included $168 million forfound liable for any PC-related claims. In numerous cases, environmental contingencies associated with the formerPPG was dismissed on motions prior to trial, and in chromium manufacturing plant in Jersey City,others PPG was released as part of settlements by PC. PPG $50 million for environmental contingencies associatedwas found not responsible for PC-related claims at trial in with the Calcasieu River Estuary and three operatingtwo cases. In January 2000, one jury found PPG, for the plant sites in PPG’s chemicals business and $54 millionfirst time, partly responsible for injuries to five plaintiffs for other environmental contingencies, including Nationalalleged to be caused by PC products. The plaintiffs Priority List sites and legacy glass manufacturing sites.holding the judgment on that verdict moved to lift the Pretax charges against income for environmentalinjunction as applied to their claims. Before the hearing remediation costs in 2011, 2010 and 2009 totaledon that motion, PPG entered into a settlement with those $16 million, $21 million and $11 million, respectively,claimants in the second quarter of 2010 to avoid the costs and are included in “Other charges” in the accompanyingand risks associated with the possible lifting of the stay consolidated statement of income. Cash outlays related toand appeal of the adverse 2000 verdict. The settlement such environmental remediation aggregated $59 million,resolved both the motion to lift the injunction and the $34 million, and $24 million in 2011, 2010 and 2009,judgment against PPG. The cost of this settlement was not respectively. The impact of foreign currency decreased thesignificant to PPG’s results of operations for the second liability by $3 million in 2011 and by $2 million in 2010.quarter of 2010 and was fully offset by prior insurancerecoveries. Although PPG has successfully defended The Company’s continuing efforts to analyze andasbestos claims brought against it in the past, in view of assess the environmental issues associated with a formerthe number of claims, and the significant verdicts that chromium manufacturing plant site located in Jersey Cityother companies have experienced in asbestos litigation, (“New Jersey Chrome”) and at the Calcasieu Riverthe result of any future litigation of such claims is Estuary resulted in a pretax charge of $173 million in theinherently unpredictable. third quarter of 2006 for the estimated costs of remediating these sites. These charges for estimatedEnvironmental Matters environmental remediation costs in 2006 were It is PPG’s policy to accrue expenses for significantly higher than PPG’s historical range of annualenvironmental contingencies when it is probable that a environmental remediation charges. Excluding 2006,liability has been incurred and the amount of loss can be pretax charges against income have ranged between $10reasonably estimated. Reserves for environmental million and $35 million per year for the past 15 years.contingencies are exclusive of claims against third parties Information is being generated from the continuingand are generally not discounted. In management’s remedial investigation activities related to New Jerseyopinion, the Company operates in an environmentally Chrome that will be incorporated into a final remedialsound manner and the outcome of the Company’s action work plan to be submitted in mid 2012 which mayenvironmental contingencies will not have a material result in adjustments to the existing reserve. 2011 PPG ANNUAL REPORT AND FORM 10-K 63
  • 66. Notes to the Consolidated Financial Statements Management expects cash outlays for environmental as these will determine the quantity of soil that must be remediation costs to range from $50 million to treated in place, the quantity that will have to be excavated $70 million annually through 2016. It is possible that and transported for offsite disposal, and the nature of technological, regulatory and enforcement developments, disposal required. The charges are exclusive of any third the results of environmental studies and other factors party indemnification, as the prospects of any such could alter the Company’s expectations with respect to recovery are uncertain. future charges against income and future cash outlays. In May 2005, the NJDEP filed a complaint against Specifically, the level of expected future remediation costs PPG and two other former chromium producers seeking to and cash outlays is highly dependent upon activity related hold the parties responsible for a further 53 sites where the to New Jersey Chrome as discussed below. source of chromium contamination is not known and to Remediation: New Jersey Chrome recover costs incurred by the agency in connection with its Since 1990, PPG has remediated 47 of 61 residential response activities at certain of those sites. During the and nonresidential sites under the 1990 Administrative third quarter of 2008, the parties reached an agreement in Consent Order (“ACO”) with the New Jersey Department principle on all claims relating to these 53 sites (the of Environmental Protection (“NJDEP”). The most “Orphan Sites Settlement”). Under the terms of this significant of the 14 remaining sites is the former Orphan Sites Settlement, PPG accepted responsibility for chromium manufacturing location in Jersey City. The remediation of six of the 53 sites, one half of the cost for principal contaminant of concern is hexavalent remediating nine sites where chrome ore processing chromium. Based on current estimates, at least 700,000 residue was used as fill in connection with the installation tons of soil may be potentially impacted for all remaining or repair of sewer pipes owned by Jersey City, reimburse sites. The Company submitted a feasibility study work the NJDEP for a portion of past costs in the amount of $5 plan to the NJDEP in October 2006 that included a review million and be responsible for the NJDEP’s oversight costs of the available remediation technology alternatives for associated with the sites for which PPG is wholly or the former chromium manufacturing location. Under the partially responsible. This settlement was finalized and feasibility study work plan, remedial alternatives which issued for public comment in June 2011. After the close of will be assessed include, but are not limited to, soil the public comment period, NJDEP determined that no excavation and offsite disposal in a licensed disposal changes to the settlement were necessary and a motion facility, in situ chemical stabilization of soil and was filed with the court to enter the settlement as a final groundwater, and in situ solidification of soils. order. In September 2011, the court entered the Orphan Site Settlement as a final order. PPG paid its share of past As a result of the extensive analysis undertaken in costs in October 2011. This Orphan Sites Settlement does connection with the preparation and submission of the not affect PPG’s responsibilities for the 14 remaining feasibility study work plan for the former chromium unremediated sites covered by PPG’s ACO. A settlement manufacturing location described above, the Company agreement among PPG, NJDEP and Jersey City (which had recorded a pretax charge of $165 million in the third asserted claims against PPG for lost tax revenue) has been quarter of 2006. The charge included estimated costs for reached and memorialized in the form of a Judicial remediation at the 14 remaining ACO sites, including the Consent Order (the “JCO”) that was entered by the court former manufacturing site, and for the resolution of on June 26, 2009. PPG’s remedial obligations under the litigation filed by NJDEP in May 2005 as discussed below. ACO with NJDEP have been incorporated into the JCO. The principal estimated cost elements of the third quarter Pursuant to the JCO, a new process has been established 2006 charge and of the remaining reserve at December 31, for the review of the technical reports PPG must submit 2011 were based on competitively derived or readily for the investigation and remedy selection for the 14 ACO available remediation industry cost data for representative sites and the six sites for which PPG has accepted sole remedial options, e.g., excavation and in situ stabilization/ responsibility under the terms of the Orphan Sites solidification. The major cost components are Settlement (i.e., 20 PPG sites). The JCO also provided for (i) transportation and disposal of excavated soil and in the appointment of a court-approved Site Administrator place soil treatment and (ii) construction services (related who is responsible for establishing a master schedule for to soil excavation, groundwater management and site the remediation of the 20 PPG sites. The JCO established a security), which account for approximately 55 percent and goal, based on currently applicable remedial provisions, to 25 percent of the reserve, respectively, as of December 31, remediate soils and sources of contamination at the PPG 2011. The reserve also includes estimated costs for sites as expeditiously as possible with a goal for remedial investigation, interim remedial measures, completion near the end of 2014 in accordance with the engineering and project management. The most significant master schedule developed by the Site Administrator. On assumptions underlying the reserve are those related to the July 6, 2009, former United States Environmental extent and concentration of chromium impacts in the soil,64 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 67. Notes to the Consolidated Financial StatementsProtection Agency Deputy Administrator, Michael interim remedial measures at that site, which consisted ofMcCabe, was appointed as Site Administrator under the the removal and off-site disposal of approximately 70,000JCO. The JCO also resolved the claims for reparations for tons of chromium impacted soil and concretelost tax revenues by Jersey City with the payment of $1.5 foundations, was approved by NJDEP and the associatedmillion over a five year time period. The JCO did not work was completed in the third quarter 2011.otherwise affect PPG’s responsibility for the remediation ofthe 14 ACO sites. PPG’s estimated costs under the JCO are PPG has submitted a final remedial action work planincluded in the December 31, 2011 reserve for New Jersey for one other remaining site under the ACO. ThisChrome environmental remediation matters. proposal has been submitted to the NJDEP for approval, with remedial activities expected to begin in 2012. In On February 6, 2009, the Natural Resources Defense addition, investigation activities are ongoing for anCouncil (“NRDC”) and the Interfaith Community additional six sites covered by the ACO adjacent to theOrganization (“ICO”) filed suit against PPG in federal former manufacturing site with completion expected incourt under the federal Resource Conservation and 2012. Investigation activities for the remaining six sitesRecovery Act seeking, among other things, to compel PPG covered by the ACO are also expected to be completed into further evaluate and remediate the chromium 2012 and PPG believes the results of the study at thecontaminated sites covered by the 1990 ACO and the former chromium manufacturing location will provide thesettlement with NJDEP and Jersey City. The Complaint Company with relevant information concerningsought to compel PPG to clean up the former chromium remediation alternatives at these sites. The investigationmanufacturing site and certain sites immediately adjacent and remediation of the soils and sources of contaminationto the former chromium manufacturing site and also to of all ACO sites and the six orphan sites for which PPGpay the plaintiffs’ attorney’s fees related to this has accepted sole responsibility is scheduled to belawsuit. NRDC and ICO subsequently amended their completed by the end of 2014.complaint to add GRACO Community Organization(“GRACO”), a New Jersey non-profit corporation, as an As described above, multiple future events, includingadditional plaintiff. In April 2011, a final settlement of the completion of feasibility studies, remedy selection,plaintiffs’ remediation claims was reached among the remedy design and remedy implementation involvingparties to this lawsuit. The settlement was memorialized governmental agency action or approvals will be required,in the form of a consent decree which has been entered by and considerable uncertainty exists regarding the timingthe United States District Court for the District of of these future events for the remaining 14 sites coveredNew Jersey. Pursuant to the terms of this settlement PPG by the ACO and the six orphan sites for which PPG hashas agreed to remediate the former chromium accepted responsibility under the terms of the Orphanmanufacturing site and the sites immediately adjacent to Sites Settlement. Final resolution of these events isthe former chromium manufacturing site in a manner that expected to occur over an extended period of time. Asis consistent with PPG’s existing proposed excavation- these events occur and to the extent that the costbased remedial proposal under the JCO. Therefore, PPG’s estimates of the environmental remediation remediesestimated remediation costs under this settlement with change, the existing reserve for this environmentalNRDC, ICO and GRACO are included in the remediation will be adjusted.December 31, 2011 reserve for New Jersey Chrome Remediation: Calcasieu River Estuaryenvironmental remediation matters. In addition to the In Lake Charles, La. the U.S. Environmentalspecified remediation actions, the settlement also requires Protection Agency (“USEPA”) completed an investigationPPG to pay the sum of $150,000 in five equal annual of contamination levels in the Calcasieu River Estuary andinstallments to NRDC, which the NRDC has indicated it issued a final remedial investigation report in Septemberintends to use to monitor PPG’s cleanup activities at these 2003, which incorporates the Human Health andsites. In October 2011, PPG reached an agreement with Ecological Risk Assessments, indicating that elevatedthe plaintiffs to resolve their claim for attorney’s fees. levels of risk exist in the estuary. PPG and other The feasibility study work plan for the former potentially responsible parties have completed a feasibilitychromium manufacturing site previously submitted in study under the authority of the Louisiana Department of2006 is being incorporated into a remedial action work Environmental Quality (“LDEQ”). PPG’s exposure withplan. PPG submitted a preliminary draft remedial action respect to the Calcasieu Estuary is focused on the lowerwork plan for the former chromium manufacturing site to few miles of Bayou d’Inde, a small tributary to theNJDEP in June 2011. Following review and comment by Calcasieu Estuary near PPG’s Lake Charles, La. facility,the NJDEP, PPG will submit a final remediation work and about 150 to 200 acres of adjacent marshes. Theplan and associated cost estimate for the site, which is Company and three other potentially responsible partiesexpected to occur by mid-2012. The work plans for submitted a draft remediation feasibility study report to 2011 PPG ANNUAL REPORT AND FORM 10-K 65
  • 68. Notes to the Consolidated Financial Statements the LDEQ in October 2006. The proposed remedial potentially responsible parties. Negotiations with respect to alternatives include sediment dredging, sediment capping, this allocation are ongoing, but the outcome is uncertain. and biomonitoring of fish and shellfish. Principal Remediation: Reasonably Possible Matters contaminants of concern which may require remediation include various metals, dioxins and furans, and In addition to the amounts currently reserved for polychlorinated biphenyls. In response to agency environmental remediation, the Company may be subject comments on the draft study, the companies conducted to loss contingencies related to environmental matters additional investigations and submitted a revised estimated to be as much as $200 million to $400 million. feasibility report to the agencies in the third quarter of Such unreserved losses are reasonably possible but are not 2008. Government officials have indicated that a currently considered to be probable of occurrence. This U.S. Army Corps of Engineers’ study has concluded that range of reasonably possible unreserved loss relates to the proposed remedy will not adversely affect drainage in environmental matters at a number of sites; however, communities adjacent to Bayou d’Inde. In response to the about 50 percent of this range relates to additional costs at revised feasibility study, LDEQ issued a draft decision New Jersey Chrome, about 25 percent relates to the document for the Bayou d’Inde area in February 2010. Calcasieu River Estuary and the three operating PPG plant The decision document includes LDEQ’s selection of sites in the Company’s chemicals businesses and the remedial alternatives for the Bayou d’Inde area and are in remaining 25 percent relates to a number of other sites, accordance with those recommended in the revised including legacy glass manufacturing sites. The loss feasibility study. LDEQ held a public hearing on contingencies related to these sites include significant March 23, 2010 and subsequently issued its final decision unresolved issues such as the nature and extent of document in March 2011. As in its draft document, contamination at these sites and the methods that may LDEQ’s selection of remedial approaches is in accordance have to be employed to remediate them. with those proposed in the feasibility study. The status of the remediation activity at New Jersey Chrome and at the Calcasieu River Estuary and the factors On June 10, 2011, LDEQ met with the Company and that could result in the need for additional environmental the three other potentially responsible parties to discuss remediation reserves at those sites are described above. implementation of a remedy for Bayou d’Inde based on Initial remedial actions are occurring at the three the final decision document. The agency proposed operating plant sites in the chemicals businesses. These entering into a new Cooperative Agreement with the four three operating plant sites are in Barberton, Ohio, Lake companies and on July 12, 2011 transmitted a draft Charles, Louisiana and Natrium, West Virginia. At document for the company’s consideration. At the same Barberton, PPG has completed a Facility Investigation and time, the companies have initiated discussions among Corrective Measure Study (“CMS”) under USEPA’s themselves on allocation of costs associated with remedy Resource Conservation and Recycling Act (“RCRA”) implementation. On October 20, 2011, one of the three Corrective Action Program. PPG has been implementing other potentially responsible parties that had participated the remediation alternatives recommended in the CMS in funding the remedial feasibility report withdrew from using a performance-based approach with USEPA Region further participation regarding implementation of the V oversight. However, USEPA Region V transferred its remedy. In mid-November 2011, PPG and the two oversight authority to the Ohio Environmental Protection remaining parties submitted comments to LDEQ on the Agency (“OEPA”) in 2010. The Barberton Corrective proposed Cooperative Agreement. Allocation discussions Action Permit was issued by Ohio EPA on September 24, are continuing among the remaining potentially 2010. As part of this permit, PPG is responsible for filing responsible parties. engineering remedies for various issues at this site. These Multiple future events, such as remedy design and remedies have not yet been filed with the OEPA. remedy implementation involving agency action or Similarly, the Company has completed a Facility approvals related to the Calcasieu River Estuary will be Investigation and CMS for the Lake Charles facility under required and considerable uncertainty exists regarding the the oversight of the LDEQ. The LDEQ has accepted the timing of these future events. Final resolution of these proposed remedial alternatives. PPG received notice of events is expected to occur over an extended period of LDEQ issuance of the final Hazardous Waste Post- time. However, based on currently available information, Closure/HSWA Permit on June 28, 2010. The Permit was design approval could occur in 2012. The remedy issued in final form on September 23, 2010. Planning for implementation could occur during 2012 to 2015, with or implementation of these proposed alternatives is in some period of long-term monitoring for remedy progress. At Natrium, a facility investigation has been effectiveness to follow. In addition, PPG’s obligation related completed and initial interim remedial measures have to any potential remediation will be dependent in part been implemented to mitigate soil impacts. There is upon the final allocation of responsibility among the additional investigation of groundwater contamination66 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 69. Notes to the Consolidated Financial Statementsongoing which may indicate the need for further remedial However, on August 24, 2009, the trial court issued anactions to address specific areas of the facility. Installation opinion finding that the City’s claims were barred by theof a groundwater treatment system has been completed. statute of limitations. The effect of the ruling was toPPG has been addressing impacts from a legacy plate glass nullify the jury’s Phase 2 damage award. In October 2009,manufacturing site in Kokomo, Indiana under the the trial court held a non-jury trial of the RedevelopmentVoluntary Remediation Program of the Indiana Authority’s damage claims under the “Polanco Act”. OnDepartment of Environmental Management. PPG has November 11, 2011, the court entered a final judgmentagreed to expand the scope of the investigation activities. consistent with all of the above results finding that prior settlements offset the $3.1 million verdict against PPG With respect to certain waste sites, the financial and others. Cost petitions are being pursued by plaintiffscondition of any other potentially responsible parties also and defendants. Appeals are expected.contributes to the uncertainty of estimating PPG’s finalcosts. Although contributors of waste to sites involving 16. Shareholders’ Equityother potentially responsible parties may face A class of 10 million shares of preferred stock,governmental agency assertions of joint and several without par value, is authorized but unissued. Commonliability, in general, final allocations of costs are made stock has a par value of $1.66 2⁄ 3 per share; 600 millionbased on the relative contributions of wastes to such sites. shares are authorized.PPG is generally not a major contributor to such sites. The following table summarizes the shares The impact of evolving programs, such as natural outstanding for the three years ended December 31, 2011:resource damage claims, industrial site reuse initiatives Common Treasury Sharesand state remediation programs, also adds to the present Stock Stock Outstandinguncertainties with regard to the ultimate resolution of this Balance, Jan. 1, 2009 290,573,068 (126,374,435) 164,198,633unreserved exposure to future loss. The Company’s Purchases — (1,500,000) (1,500,000)assessment of the potential impact of these environmental Issuances — 2,969,026 2,969,026contingencies is subject to considerable uncertainty due Balance, Dec. 31, 2009 290,573,068 (124,905,409) 165,667,659to the complex, ongoing and evolving process of Purchases — (8,124,621) (8,124,621)investigation and remediation, if necessary, of such Issuances — 2,838,777 2,838,777environmental contingencies, and the potential for Balance, Dec. 31, 2010 290,573,068 (130,191,253) 160,381,815technological and regulatory developments. Purchases — (10,236,694) (10,236,694)Other Matters Issuances — 1,743,659 1,743,659 PPG is a defendant in a matter in the California State Balance, Dec. 31, 2011 290,573,068 (138,684,288) 151,888,780Court in San Francisco in which the City of Modesto andits Redevelopment Authority claim that PPG and other Per share cash dividends paid were $2.26 in 2011,defendants manufactured a defective product, the dry $2.18 in 2010 and $2.13 in 2009.cleaning solvent perchloroethylene (“PCE”), and failed to 17. Accumulated Other Comprehensive Lossprovide adequate warnings regarding the environmental Accum-risks associated with the use of PCE. The plaintiffs Pension and ulatedclaimed the defendants are responsible for remediation of Other Unrealized Other Unrealized Postretire- Gain (Loss) Unrealized Compre-soil and groundwater contamination at numerous dry Currency ment on Gain (Loss) hensive Translation Benefit Marketable on (Loss)cleaner sites in Modesto, California. In 2006, a Phase 1 (Millions) Adjustments Adjustments Securities Derivatives Incometrial was conducted as to four sites. The jury returned a Balance,verdict in the amount of $3.1 million against PPG, The January 1, 2009 $(107) $(1,461) $(1) $(59) $(1,628)Dow Chemical Company, Vulcan, Oxy, and R.R. Street. Net change 173 169 — 25 367The verdict was not apportioned. Balance, December 31, 2009 $ 66 $(1,292) $(1) $(34) $(1,261) Subsequent to the Phase 1 verdict, Vulcan and Oxy Net change (13) (136) 1 (2) (150)settled. In 2008, trial commenced on 18 Phase 2 Sites. Balance,Prior to submission of the case to the jury, the Court December 31, 2010 $ 53 $(1,428) $— $(36) $(1,411)granted motions that limited PPG’s potential liability to Net change (188) (169) — (32) (389)one of the 18 sites. The damages sought at this one site Balance,totaled $27 million. A jury verdict in the amount of $18 December 31, 2011$(135) $(1,597) $— $(68) $(1,800)million was returned against PPG and The Dow ChemicalCompany on May 18, 2009. The verdict was not With the exception of unrealized currency translationapportioned. The jury was not able to reach a verdict on adjustments, all other components of accumulated otherthe statute of limitations issue on the site in question. comprehensive loss are reported net of tax. 2011 PPG ANNUAL REPORT AND FORM 10-K 67
  • 70. Notes to the Consolidated Financial Statements Unrealized currency translation adjustments related to Compensation expense and cash contributions translation of foreign denominated balance sheets are not related to the Company match of participant presented net of tax given that no deferred U.S. income contributions to the Savings Plan for 2011, 2010 and 2009 taxes have been provided on undistributed earnings of non- totaled $26 million, $9 million and $7 million, U.S. subsidiaries because they are deemed to be reinvested respectively. A portion of the Savings Plan qualifies under for an indefinite period of time. the Internal Revenue Code as an Employee Stock Ownership Plan. As a result, the tax deductible dividends The tax (cost) benefit related to unrealized currency on PPG shares held by the Savings Plan were $20 million, translation adjustments other than translation of foreign $24 million and $28 million for 2011, 2010 and 2009, denominated balance sheets, for the years ended respectively. December 31, 2011, 2010 and 2009 was $(7) million, $8 million and $62 million, respectively. 19. Other Earnings (Millions) 2011 2010 2009 The tax benefit related to the adjustment for pension Royalty income 55 58 45 and other postretirement benefits for the years ended Share of net earnings (loss) of equity affiliates December 31, 2011, 2010 and 2009 was $98 million, $65 (See Note 5) 37 45 (5) million and $18 million, respectively. The cumulative tax Gain on sale of assets 12 8 36 benefit related to the adjustment for pension and other Other 73 69 74 postretirement benefits at December 31, 2011 and 2010 Total $177 $180 $150 was $990 million and $889 million, respectively. The tax (cost) benefit related to the change in the unrealized gain 20. Stock-Based Compensation (loss) on marketable securities for the years ended December 31, 2011, 2010 and 2009 was $(0.2) million, The Company’s stock-based compensation includes $0.6 million and $0.1 million, respectively. The tax stock options, restricted stock units (“RSUs”) and grants benefit (cost) related to the change in the unrealized gain of contingent shares that are earned based on achieving (loss) on derivatives for the years ended December 31, targeted levels of total shareholder return. All current 2011, 2010 and 2009 was $19 million, $1 million and grants of stock options, RSUs and contingent shares are $(16) million, respectively. made under the PPG Industries, Inc. Amended and Restated Omnibus Incentive Plan (“PPG Amended 18. Employee Savings Plan Omnibus Plan”), which was amended and restated PPG’s Employee Savings Plan (“Savings Plan”) covers effective April 21, 2011. Shares available for future grants substantially all U.S. employees. The Company makes under the PPG Amended Omnibus Plan were 9.7 million as of December 31, 2011. matching contributions to the Savings Plan based upon participants’ savings, subject to certain limitations. For Total stock-based compensation cost was $36 million, most participants not covered by a collective bargaining $52 million and $34 million in 2011, 2010 and 2009, agreement, Company-matching contributions are respectively. The total income tax benefit recognized in established each year at the discretion of the Company and the accompanying consolidated statement of income are applied to a maximum of 6% of eligible participant related to the stock-based compensation was $13 million, compensation. For those participants whose employment is $18 million and $12 million in 2011, 2010 and 2009, covered by a collective bargaining agreement, the level of respectively. Company-matching contribution, if any, is determined by the relevant collective bargaining agreement. Stock Options PPG has outstanding stock option awards that have The Company-matching contribution was 100% for been granted under two stock option plans: the PPG the first two months of 2009. The Company-matching Industries, Inc. Stock Plan (“PPG Stock Plan”) and the contribution was suspended from March 2009 through PPG Amended Omnibus Plan. Under the PPG Amended June 2010 as a cost savings measure in recognition of the Omnibus Plan and the PPG Stock Plan, certain employees adverse impact of the global recession. Effective July 1, of the Company have been granted options to purchase 2010, the Company match was reinstated at 50% on the shares of common stock at prices equal to the fair market first 6% of compensation contributed for most employees value of the shares on the date the options were granted. eligible for the Company-matching contribution feature. The options are generally exercisable beginning from six This included the union represented employees in to 48 months after being granted and have a maximum accordance with their collective bargaining agreements. term of 10 years. Upon exercise of a stock option, shares On January 1, 2011, the Company match was increased to of Company stock are issued from treasury stock. The 75% on the first 6% of compensation contributed by these PPG Stock Plan includes a restored option provision for eligible employees. options originally granted prior to January 1, 2003 that68 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 71. Notes to the Consolidated Financial Statementsallows an optionee to exercise options and satisfy the A summary of stock options outstanding andoption cost by certifying ownership of mature shares of exercisable and activity for the year ended December 31,PPG common stock with a market value equal to the 2011 is presented below:option cost. Weighted Average The fair value of stock options issued to employees is Weighted Remainingmeasured on the date of grant and is recognized as Average Contractual Intrinsic Number of Exercise Life Valueexpense over the requisite service period. PPG estimates Shares Price (in years) (in millions)the fair value of stock options using the Black-Scholes Outstanding,option pricing model. The risk-free interest rate is January 1, 2011 5,694,718 $57.37 5.5 $152determined by using the U.S. Treasury yield curve at the Granted 654,866 $88.42date of the grant and using a maturity equal to the Exercised (1,366,049) $60.80expected life of the option. The expected life of options is Forfeited/Expired (75,650) $72.90calculated using the average of the vesting term and the Outstanding,maximum term, as prescribed by accounting guidance on December 31, 2011 4,907,885 $60.52 5.6 $116the use of the simplified method for determining theexpected term of an employee share option. This method Vested or expected tois used as the vesting term of stock options was changed vest, December 31, 2011 4,869,885 $60.42 5.6 $115to three years in 2004 and, as a result, the historicalexercise data does not provide a reasonable basis upon Exercisable,which to estimate the expected life of options. The December 31, 2011 2,641,008 $62.40 3.5 $ 56expected dividend yield and volatility are based onhistorical stock prices and dividend amounts over past At December 31, 2011, unrecognized compensationtime periods equal in length to the expected life of the cost related to outstanding stock options that have not yetoptions. vested totaled $7 million. This cost is expected to be The following weighted average assumptions were recognized as expense over a weighted average period ofused to calculate the fair values of stock option grants in 1.6 years.each year: The following table presents stock option activity for 2011 2010 2009 the years ended December 31, 2011, 2010 and 2009:Risk free interest rate 2.9% 2.8% 2.8% (Millions) 2011 2010 2009Expected life of option in years 6.4 5.9 6.5 Total intrinsic value of stock options exercised $40 $ 37 $ 2Expected dividend yield 3.3% 3.4% 3.2% Cash received from stock option exercises 81 146 12Expected volatility 28.0% 28.5% 25.7% Income tax benefit from the exercise of stock options 9 9 1 The weighted average fair value of options granted Total fair value of stock options vested 10 13 10was $19.00 per share, $13.45 per share, and $7.02 pershare for the years ended December 31, 2011, 2010, and2009, respectively. 2011 PPG ANNUAL REPORT AND FORM 10-K 69
  • 72. Notes to the Consolidated Financial Statements Restricted Stock Units Contingent Share Grants Long-term incentive value is delivered to selected key The Company also provides grants of contingent management employees by granting RSUs, which have shares to selected key executives that may be earned either time or performance-based vesting features. The based on PPG total shareholder return over the three-year fair value of an RSU is equal to the market value of a share period following the date of grant. Contingent share of PPG stock on the date of grant. Time-based RSUs vest grants (referred to as “TSR awards”) are made annually over the three-year period following the date of grant, and are paid out at the end of each three-year period unless forfeited, and will be paid out in the form of stock, based on the Company’s performance. Performance is cash or a combination of both at the Company’s measured by determining the percentile rank of the total discretion at the end of the three year vesting period. shareholder return of PPG common stock in relation to Performance-based RSUs vest based on achieving specific the total shareholder return of the S&P 500 for the three- annual performance targets for earnings per share growth year period following the date of grant. The payment of and cash flow return on capital over the three calendar awards following the three-year award period will be year-end periods following the date of grant. Unless based on performance achieved in accordance with the forfeited, the performance-based RSUs will be paid out in scale set forth in the plan agreement and may range from the form of stock, cash or a combination of both at the 0 percent to 220 percent of the initial grant. A payout of Company’s discretion at the end of the three-year 100 percent is earned if the target performance is performance period if PPG meets the performance targets. achieved. Contingent share awards for the 2009-2011, The amount paid for performance-based awards may 2010-2012, and 2011-2013 periods earn dividend range from 0% to 180% of the original grant, based upon equivalents for the award period, which will be paid to the frequency with which the annual earnings per share participants with the award payout at the end of the growth and cash flow return on capital performance period based on the actual number of contingent shares targets are met over the three calendar year periods. For that are earned. Any payments made at the end of the the purposes of expense recognition, PPG has assumed award period may be in the form of stock, cash or a that performance-based RSUs granted in 2009 will vest at combination of both. The TSR awards qualify as liability 150% and those granted in 2010 and 2011 will vest at the awards, and compensation expense is recognized over the 100% level. Five of the six performance targets were met three-year award period based on the fair value of the during the performance vesting period of the 2009 grant. awards (giving consideration to the Company’s percentile At December 31, 2011, four of the four possible rank of total shareholder return) remeasured in each performance targets had been met for the 2010 grant, and reporting period until settlement of the awards. two of the two possible performance targets had been met As of December 31, 2011, there was $6.6 million of for the 2011 grants. total unrecognized compensation cost related to The following table summarizes RSU activity for the outstanding TSR awards based on the current estimate of year ended December 31, 2011: fair value. This cost is expected to be recognized as Weighted Intrinsic expense over a weighted average period of 1.5 years. Number of Average Value Shares Fair Value (in millions) 21. Advertising Costs Outstanding, January 1, 2011 1,205,123 $44.03 $101 Advertising costs are expensed in the year incurred Granted 221,009 $82.14 and totaled $245 million, $288 million and $268 million Released from restrictions (333,549) $55.25 in 2011, 2010 and 2009, respectively. Forfeited (86,826) $49.08 Outstanding, December 31, 22. Research and Development 2011 1,005,757 $46.98 $ 84 (Millions) 2011 2010 2009 Vested or expected to vest, Research and development – total $445 $408 $403 December 31, 2011 998,106 $46.79 $ 83 Less depreciation on research facilities 15 14 15 There was $11 million of total unrecognized Research and development – net $430 $394 $388 compensation cost related to unvested RSUs outstanding as of December 31, 2011. This cost is expected to be recognized as expense over a weighted average period of 1.6 years.70 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 73. Notes to the Consolidated Financial Statements23. Quarterly Financial Information (unaudited) brands and purchased sundries to painting contractors 2011 Quarter Ended and consumers in Europe, the Middle East and Africa.Millions(except per share The Optical and Specialty Materials reportableamounts) March 31 June 30 Sept. 30 Dec. 31 Total segment is comprised of the optical products and silicasNet sales $3,533 $3,986 $3,849 $3,517 $14,885 businesses. The primary Optical and Specialty MaterialsCost of Sales (1) 2,127 2,417 2,353 2,184 9,081 products are Transitions® lenses, optical lens materialsNet income (attributable to and high performance sunlenses; amorphous precipitated PPG) 228 340 311 216 1,095 silicas for tire, battery separator and other end-useEarnings per common share 1.42 2.15 1.98 1.41 6.96 markets; and Teslin® substrate used in such applicationsEarnings per common share as radio frequency identification (RFID) tags and labels, – assuming dilution $ 1.40 $ 2.12 $ 1.96 $ 1.39 $ 6.87 e-passports, drivers’ licenses and identification cards. 2010 Quarter Ended Transitions® lenses are processed and distributed by PPG’sMillions 51 percent-owned joint venture with Essilor(except per share International.amounts) March 31 June 30 Sept. 30 Dec. 31 TotalNet sales $3,126 $3,458 $3,460 $3,379 $13,423 The Commodity Chemicals reportable segment isCost of Sales(1) 1,944 2,076 2,108 2,086 8,214 comprised of the chlor-alkali and derivatives operatingNet income (attributable to segment. The primary chlor-alkali and derivative products PPG) 30 272 262 205 769 are chlorine, caustic soda, vinyl chloride monomer,Earnings per common share 0.18 1.64 1.59 1.26 4.67 chlorinated solvents, calcium hypochlorite, ethyleneEarnings per common share dichloride, hydrochloric acid and phosgene derivatives. – assuming dilution $ 0.18 $ 1.63 $ 1.58 $ 1.24 $ 4.63 The Glass reportable segment is comprised of the flat(1) Exclusive of depreciation and amortization. glass and fiber glass operating segments. This reportable24. Reportable Business Segment Information segment primarily supplies flat glass and continuous-Segment Organization and Products strand fiber glass products. PPG is a multinational manufacturer with 13 Production facilities and markets for Performanceoperating segments that are organized based on the Coatings, Industrial Coatings, Architectural Coatings –Company’s major products lines. These operating EMEA, Optical and Specialty Materials, Commoditysegments are also the Company’s reporting units for Chemicals and Glass are global. PPG’s reportablepurposes of testing goodwill for impairment (see Note 1, segments continue to pursue opportunities to further“Summary of Significant Accounting Policies”). The develop markets in Asia, Eastern Europe and Latinoperating segments have been aggregated based on America. Each of the reportable segments in which PPG iseconomic similarities, the nature of their products, engaged is highly competitive. The diversification of ourproduction processes, end-use markets and methods of product lines and the worldwide markets served tend todistribution into six reportable business segments. minimize the impact on PPG’s total sales and earnings of The Performance Coatings reportable segment is changes in demand in a particular market or in a particular geographic area.comprised of the refinish, aerospace, architecturalcoatings – Americas and Asia Pacific and protective and The accounting policies of the operating segments aremarine coatings operating segments. This reportable the same as those described in the summary of significantsegment primarily supplies a variety of protective and accounting policies. The Company allocates resources todecorative coatings, sealants and finishes along with paint operating segments and evaluates the performance ofstrippers, stains and related chemicals, as well as operating segments based upon segment income, which istransparencies and transparent armor. earnings before interest expense – net, income taxes and noncontrolling interests and excludes certain charges The Industrial Coatings reportable segment is which are considered to be unusual or non-recurring. Thecomprised of the automotive OEM, industrial coatings Company also evaluates performance of operatingand packaging coatings operating segments. This segments based on working capital reduction, marginreportable segment primarily supplies a variety of growth and sales growth. Legacy items include currentprotective and decorative coatings and finishes along with costs related to former operations of the Company,adhesives, sealants, inks and metal pretreatment products. including certain environmental remediation, pension and The Architectural Coatings – EMEA reportable other postretirement benefit costs, and certain charges forsegment is comprised of the architectural coatings – legal and other matters which are considered to beEMEA operating segment. This reportable segment unusual or non-recurring. These legacy costs are excludedprimarily supplies a variety of coatings under a number of from the segment income that is used to evaluate the 2011 PPG ANNUAL REPORT AND FORM 10-K 71
  • 74. Notes to the Consolidated Financial Statements performance of the operating segments. Legacy items also portion of net periodic pension expense related to the include equity earnings (loss) from PPG’s approximate corporate staff functions is included in the Corporate 40 percent investment in its former automotive glass and unallocated costs. services business and $35 million and $30 million of For Optical and Specialty Materials, Commodity costs in 2011 and 2010, respectively, related to the Chemicals and Glass, intersegment sales and transfers are pension and other postemployment benefit liabilities of recorded at selling prices that approximate market prices. the divested business retained by PPG. Corporate Product movement between Performance Coatings, unallocated costs include the costs of corporate staff Industrial Coatings and Architectural Coatings – EMEA functions not directly associated with the operating is limited, is accounted for as an inventory transfer and is segments, the cost of corporate legal cases, net of related recorded at cost plus a mark-up, the impact of which is insurance recoveries, and the cost of certain insurance not significant to the segment income of the three and employee benefit programs. Net periodic pension coatings reportable segments. expense is allocated to the operating segments and the Corporate / Optical Eliminations / Architectural and Non- (Millions) Performance Industrial Coatings – Specialty Commodity Segment Consolidated Reportable Business Segments Coatings Coatings EMEA Materials Chemicals Glass Items(1) Totals 2011 Net sales to external customers $4,626 $4,158 $2,104 $1,204 $1,732 $1,061 $ — $14,885 Intersegment net sales — 3 9 — (12) — Total net sales $4,626 $4,158 $2,104 $1,207 $1,741 $1,061 $(12) $14,885 Segment income $ 673 $ 438 $ 123 $ 326 $ 370 $ 97 $ — $ 2,027 Legacy items(2) (66) Interest expense, net of interest income (168) Acquisition-related gain, net(3) 9 Corporate unallocated(4) (205) Income before income taxes $ 1,597 Depreciation and amortization (See Note 1) $ 115 $ 90 $ 113 $ 36 $ 41 $ 52 $ 20 $ 467 Share of net earnings of equity affiliates 2 1 2 — 1 24 7 37 Segment assets(5) 4,017 2,614 2,626 610 690 919 2,906 14,382 Investment in equity affiliates 12 12 20 — — 170 47 261 Expenditures for property 79 73 48 54 89 56 41 440 2010 Net sales to external customers $4,281 $3,708 $1,874 $1,141 $1,434 $ 985 $ — $13,423 Intersegment net sales — (1) 1 3 7 — (10) — Total net sales $4,281 $3,707 $1,875 $1,144 $1,441 $ 985 $(10) $13,423 Segment income $ 661 $ 378 $ 113 $ 307 $ 189 $ 74 $ — $ 1,722 Legacy items(2) (67) Interest expense, net of interest income (155) Corporate unallocated(4) (205) Income before income taxes $ 1,295 Depreciation and amortization (See Note 1) $ 117 $ 95 $ 107 $ 36 $ 39 $ 56 $ 20 $ 470 Share of net earnings (loss) of equity affiliates 2 2 1 — (1) 26 15 45 Segment assets(5) 4,027 2,620 2,759 597 587 893 3,492 14,975 Investment in equity affiliates 13 13 18 — 1 156 215 416 Expenditures for property 89 68 51 39 40 32 20 33972 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 75. Notes to the Consolidated Financial Statements Corporate / Optical Eliminations / Architectural and Non-(Millions) Performance Industrial Coatings – Specialty Commodity Segment ConsolidatedReportable Business Segments Coatings Coatings EMEA Materials Chemicals Glass Items(1) Totals2009Net sales to external customers $4,095 $3,068 $1,952 $1,002 $1,273 $849 $ — $12,239Intersegment net sales — — — 3 9 — (12) — Total net sales $4,095 $3,068 $1,952 $1,005 $1,282 $849 $(12) $12,239Segment income $ 551 $ 159 $ 128 $ 235 $ 152 $ (39) $ — $ 1,186Legacy items(2) (76)Business restructuring (See Note 8) (186)Interest expense, net of interest income (166)Corporate unallocated(4) (141) Income before income taxes $ 617Depreciation and amortization (See Note 1) $ 120 $ 98 $ 109 $ 36 $ 40 $ 58 $ 19 $ 480Share of net earnings (loss) of equity affiliates 2 1 1 — (3) (5) (1) (5)Segment assets(5) 4,003 2,592 2,987 576 564 846 2,672 14,240Investment in equity affiliates 11 9 19 — 2 117 207 365Expenditures for property 51 48 38 32 24 27 11 231(Millions)Geographic Information 2011 2010 2009Net sales(6) The Americas United States $ 6,203 $ 5,623 $ 5,113 Other Americas 1,121 1,040 867 Europe, Middle East and Africa (“EMEA”) 5,043 4,536 4,458 Asia Pacific 2,518 2,224 1,801 Total $14,885 $13,423 $12,239Segment income The Americas United States $ 1,116 $ 893 $ 623 Other Americas 97 99 61 EMEA 454 387 263 Asia Pacific 360 343 239 Total $ 2,027 $ 1,722 $ 1,186Property—net The Americas United States $ 1,345 $ 1,274 $ 1,294 Other Americas 98 106 113 EMEA 841 897 997 Asia Pacific 437 409 350 Total $ 2,721 $ 2,686 $ 2,754(1) Corporate intersegment net sales represent intersegment net sales eliminations. Corporate unallocated costs include the costs of corporate staff functions not directly associated with the operating segments and certain legal and benefit costs.(2) Legacy items include current costs related to former operations of the Company, including certain environmental remediation, pension and other postretirement benefit costs, legal costs and certain charges which are considered to be non-recurring, including a charge related to flat glass antitrust matters in the third quarter of 2010. Legacy items also include equity earnings (loss) from PPG’s approximate 40 percent investment in the former automotive glass and services business. Beginning in 2011, the earnings impact of adjustments to the Company’s proposed asbestos settlement liability is presented in Legacy items. Prior year amounts have been conformed to this presentation.(3) The year ended December 31, 2011 includes a second quarter 2011 net benefit stemming primarily from a bargain purchase gain, reflecting the excess of the fair value of the net assets acquired from Equa-Chlor during the quarter over the price paid.(4) Beginning in 2011, unallocated stock-based compensation costs will be reported as part of other unallocated corporate expense. Prior year amounts have been conformed to this presentation.(5) Segment assets are the total assets used in the operation of each segment. Corporate assets are principally cash and cash equivalents, cash held in escrow, short term investments, deferred tax assets and the approximate 40 percent investment in the former automotive glass and services business.(6) Net sales to external customers are attributed to geographic regions based upon the location of the operating unit shipping the product. 2011 PPG ANNUAL REPORT AND FORM 10-K 73
  • 76. Item 9. Changes in and Disagreements With Part III Accountants on Accounting and Financial Disclosure Item 10. Directors, Executive Officers and None. Corporate Governance The information about the Company’s directors Item 9A. Controls and Procedures required by Item 10 and not otherwise set forth below is (a) Evaluation of disclosure controls and procedures. contained under the caption “Proposal 1: Election of Based on their evaluation as of the end of the period Directors” in PPG’s definitive Proxy Statement for the covered by this Form 10-K, the Company’s principal 2012 Annual Meeting of Shareholders (the “Proxy executive officer and principal financial officer have Statement”) which the Company anticipates filing with concluded that the Company’s disclosure controls and the Securities and Exchange Commission, pursuant to procedures (as defined in Rules 13a-15(e) and 15d-15(e) Regulation 14A, not later than 120 days after the end of under the Securities Exchange Act of 1934 (the the Company’s fiscal year, and is incorporated herein by “Exchange Act”)) are effective to ensure that information reference. required to be disclosed by the Company in reports that it The executive officers of the Company are elected by files or submits under the Exchange Act is recorded, the Board of Directors. The information required by this processed, summarized and reported within the time item concerning the Company’s executive officers is periods specified in Securities and Exchange Commission incorporated by reference herein from Part I of this report rules and forms and to ensure that information required under the caption “Executive Officers of the Company.” to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and Information regarding the Company’s Audit communicated to the Company’s management, including Committee is included in the Proxy Statement under the its principal executive and principal financial officers, as caption “Corporate Governance – Audit Committee” and appropriate, to allow timely decisions regarding required is incorporated herein by reference. disclosure. Information regarding the Company’s codes of ethics (b) Changes in internal control. is included in the Proxy Statement under the caption There were no changes in the Company’s internal “Corporate Governance – Codes of Ethics” and is control over financial reporting that occurred during the incorporated herein by reference. Company’s most recent fiscal quarter that have materially Information about compliance with Section 16(a) of affected, or are reasonably likely to materially affect, the the Exchange Act is included in the Proxy Statement Company’s internal control over financial reporting. under the caption “Beneficial Ownership – Section 16(a) See Management Report on page 33 for management’s Beneficial Ownership Reporting Compliance” and is annual report on internal control over financial reporting. incorporated herein by reference. See Report of Independent Registered Public Accounting Item 11. Executive Compensation Firm on page 32 for Deloitte & Touche LLP’s attestation The information required by Item 11 is contained in report on the Company’s internal control over financial the Proxy Statement under the captions “Compensation of reporting. Directors,” “Compensation Discussion and Analysis,” Item 9B. Other Information “Compensation of Executive Officers,” “Potential None. Payments upon Termination or Change in Control,” “Corporate Governance – Compensation Committee Interlocks and Insider Participation,” and “Corporate Governance – Officers-Directors Compensation Committee Report to Shareholders” and is incorporated herein by reference.74 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 77. Item 12. Security Ownership of Certain Beneficial Part IVOwners and Management and RelatedStockholder Matters Item 15. Exhibits, Financial Statement Schedules The information required by Item 12 is contained in (a)(1) Consolidated Financial Statements and Reports ofthe Proxy Statement under the captions “Beneficial Independent Registered Public Accounting FirmOwnership” and “Equity Compensation Plan (see Part II, Item 8 of this Form 10-K).Information” and is incorporated herein by reference. The following information is filed as part of thisItem 13. Certain Relationships and Related Form 10-K:Transactions, and Director Independence Page The information required by Item 13 is contained in Internal Controls – Report of Independentthe Proxy Statement under the captions “Corporate Registered Public Accounting Firm . . . . . . . . . . . . . . 32Governance – Director Independence,” “Corporate Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . 33Governance – Review and Approval or Ratification ofTransactions with Related Persons” and “Corporate Consolidated Financial Statements – Report ofGovernance – Certain Relationships and Related Independent Registered Public Accounting Firm . . . . 33Transactions” and is incorporated herein by reference. Consolidated Statement of Income for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . . 34Item 14. Principal Accounting Fees and Services Consolidated Balance Sheet as of December 31, 2011 The information required by Item 14 is contained in and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35the Proxy Statement under the caption “IndependentRegistered Public Accounting Firm” and is incorporated Consolidated Statement of Shareholders’ Equity forherein by reference. the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Consolidated Statement of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . . 37 Notes to the Consolidated Financial Statements . . . . 38 (a)(2) Consolidated Financial Statement Schedule for years ended December 31, 2011, 2010 and 2009. The following Consolidated Financial Statement Schedule should be read in conjunction with the previously referenced financial statements: Schedule II – Valuation and Qualifying Accounts Allowance for Doubtful Accounts for the Years Ended December 31, 2011, 2010 and 2009 Balance at Charged to Balance at Beginning Costs and End of (Millions) of Year Expenses Deductions(1) Year 2011 $ 91 $31 $(51) $ 71 2010 $122 $18 $(49) $ 91 2009 $103 $59 $(40) $122 (1) Notes and accounts receivable written off as uncollectible, net of recoveries, amounts attributable to divestitures and changes attributable to foreign currency translation. (2) Expenses and deductions during 2011 were elevated by $9 million due to a U.K. based retail do-it-yourself customer who filed for bankruptcy during the second quarter of 2011. 2011 PPG ANNUAL REPORT AND FORM 10-K 75
  • 78. All other schedules are omitted because they are not 4.6 Supplemental Indenture, dated as of March applicable. 18, 2008, was filed as Exhibit 4.2 to the (a)(3) Exhibits. The following exhibits are filed as a Registrant’s Current Report on Form 8-K part of, or incorporated by reference into, this filed on March 18, 2008. Form 10-K. 4.7 Second Supplemental Indenture, dated as of 3 PPG Industries, Inc., Restated Articles of November 12, 2010, was filed as Exhibit 4.3 Incorporation, as amended, were filed as to the Registrant’s Current Report on Exhibit 3 to the Registrant’s Quarterly Report Form 8-K filed on November 12, 2010. on Form 10-Q for the period ended †*10 PPG Industries, Inc. Nonqualified March 31, 1995. Retirement Plan, as amended and restated 3.1 Statement with Respect to Shares, amending September 24, 2008. the Restated Articles of Incorporation *10.1 Form of Change in Control Employment effective April 21, 1998, was filed as Agreement entered into with executives prior Exhibit 3.1 to the Registrant’s Annual Report to January 1, 2008, as amended, was filed as on Form 10-K for the period ended Exhibit 10.2 to the Registrant’s Annual December 31, 1998. Report on Form 10-K for the period ended 3.2 Amendment to Restated Articles of December 31, 2007. Incorporation of PPG Industries, Inc., as *10.2 Form of Change in Control Employment amended, effective April 27, 2007, was filed Agreement entered into with executives on as Exhibit 3.1b to the Registrant’s Quarterly or after January 1, 2008 through Report on Form 10-Q for the period ended December 31, 2009, was filed as March 31, 2007. Exhibit 10.24 to the Registrant’s Annual 3.3 PPG Industries, Inc., Bylaws, as amended Report on Form 10-K for the period ended and restated on April 19, 2007, were filed as December 31, 2007. Exhibit 3.2 to the Registrant’s Quarterly *10.3 Form of Change in Control Employment Report on Form 10-Q for the period ended Agreement entered into with executives on March 31, 2007. or after January 1, 2010, was filed as 4 Indenture, dated as of Aug. 1, 1982, was filed Exhibit 10.3 to the Registrant’s Annual as Exhibit 4.1 to the Registrant’s Registration Report on Form 10-K for the period ended Statement on Form S-3 (No. 333-44397) December 31, 2009. dated January 16, 1998. *10.4 PPG Industries, Inc. Deferred Compensation 4.1 First Supplemental Indenture, dated as of Plan for Directors related to compensation April 1, 1986, was filed as Exhibit 4.2 to the deferred prior to January 1, 2005, was filed Registrant’s Registration Statement on Form as Exhibit 10.3 to the Registrant’s Annual S-3 (No. 333-44397) dated January 16, 1998. Report on Form 10-K for the period ended 4.2 Second Supplemental Indenture, dated as of December 31, 1997. October 1, 1989, was filed as Exhibit 4.3 to *10.5 PPG Industries, Inc. Deferred Compensation the Registrant’s Registration Statement on Plan for Directors related to compensation Form S-3 (No. 333-44397) dated January 16, deferred on or after January 1, 2005, as 1998. amended February 15, 2006, was filed as 4.3 Third Supplemental Indenture, dated as of Exhibit 10.4 to the Registrant’s Quarterly November 1, 1995, was filed as Exhibit 4.4 Report on Form 10-Q for the period ended to the Registrant’s Registration Statement on March 31, 2006. Form S-3 (No. 333-44397) dated January 16, *10.6 PPG Industries, Inc. Deferred Compensation 1998. Plan related to compensation deferred prior 4.4 Indenture, dated as of June 24, 2005, was to January 1, 2005, as amended effective filed as Exhibit 4.1 to the Registrant’s July 14, 2004, was filed as Exhibit 10.1 to the Current Report on Form 8-K dated June 20, Registrant’s Quarterly Report on Form 10-Q 2005. for the period ended June 30, 2004. 4.5 Indenture, dated as of March 18, 2008, was filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 18, 2008.76 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 79. *10.7 PPG Industries, Inc. Deferred Compensation *10.18 Form of Nonqualified Stock Option Award Plan related to compensation deferred on or Agreement, was filed as Exhibit 10.3 to the after January 1, 2005, as amended and Registrant’s Quarterly Report on Form 10-Q restated September 24, 2008, was filed as for the period ended September 30, 2009. Exhibit 10.6 to the Registrant’s Annual *10.19 Form of Nonqualified Stock Option Award Report on Form 10-K for the period ended Agreement, was filed as Exhibit 10.4 to the December 31, 2008. Registrant’s Quarterly Report on Form 10-Q*10.8 PPG Industries, Inc. Executive Officers’ Long for the period ended June 30, 2011. Term Incentive Plan was filed as Exhibit 10.1 *10.20 Form of TSR Share Award Agreement, was to the Registrant’s Current Report on filed as Exhibit 10.15 to the Registrant’s Form 8-K dated February 16, 2005. Annual Report on Form 10-K for the period*10.9 PPG Industries, Inc. Incentive Compensation ended December 31, 2008. Plan for Key Employees, as amended April *10.21 Form of TSR Share Award Agreement, was 20, 2006, was filed as Exhibit 10.8 to the filed as Exhibit 10.7 to the Registrant’s Registrant’s Annual Report on Form 10-K for Quarterly Report on Form 10-Q for the the period ended December 31, 2008. period ended September 30, 2009.*10.10 PPG Industries, Inc. Management Award *10.22 Form of TSR Share Award Agreement, was Plan, as amended April 20, 2006, was filed as filed as Exhibit 10.9 to the Registrant’s Exhibit 10.9 to the Registrant’s Annual Quarterly Report on Form 10-Q for the Report on Form 10-K for the period ended period ended June 30, 2011. December 31, 2008. *10.23 Form of Performance-Based Restricted Stock*10.11 PPG Industries, Inc. Stock Plan, dated as of Unit Award Agreement for Key Employees, April 17, 1997, as amended July 20, 2005, was filed as Exhibit 10.16 to the Registrant’s was filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the period Quarterly Report on Form 10-Q for the ended December 31, 2008. period ended September 30, 2005. *10.24 Form of Performance-Based Restricted Stock*10.12 PPG Industries, Inc. Omnibus Incentive Plan Unit Award Agreement for Key Employees, was filed as Exhibit 10.18 to the Registrant’s was filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarterly Report on Form 10-Q for the period ended March 31, 2006. period ended September 30, 2009.*10.13 PPG Industries, Inc. Amended and Restated *10.25 Form of Performance-Based Restricted Stock Omnibus Incentive Plan, was filed as Annex Unit Award Agreement, was filed as A to the Registrant’s Definitive Proxy Exhibit 10.17 to the Registrant’s Annual Statement for its 2011 Annual Meeting of Report on Form 10-K for the period ended Shareholders filed on March 10, 2011. December 31, 2008.*10.14 Form of Non-Qualified Option Agreement *10.26 Form of Performance-Based Restricted Stock for Directors was filed as Exhibit 10.4 to the Unit Award Agreement, was filed as Registrant’s Current Report on Form 8-K Exhibit 10.5 to the Registrant’s Quarterly dated February 15, 2005. Report on Form 10-Q for the period ended*10.15 Form of Time-Vested Restricted Stock Unit September 30, 2009. Award Agreement, was filed as Exhibit 10.13 *10.27 Form of Performance-Based Restricted Stock to the Registrant’s Annual Report on Unit Award Agreement for Key Employees, Form 10-K for the period ended was filed as Exhibit 10.5 to the Registrant’s December 31, 2008. Quarterly Report on Form 10-Q for the*10.16 Form of Time-Vested Restricted Stock Unit period ended June 30, 2011. Award Agreement for Directors, was filed as *10.28 Form of Performance-Based Restricted Stock Exhibit 10.8 to the Registrant’s Quarterly Unit Award Agreement, was filed as Exhibit Report on Form 10-Q for the period ended 10.6 to the Registrant’s Quarterly Report on June 30, 2011. Form 10-Q for the period ended June 30,*10.17 Form of Non-Qualified Stock Option Award 2011. Agreement, was filed as Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008. 2011 PPG ANNUAL REPORT AND FORM 10-K 77
  • 80. *10.29 Form of Time-Vested Restricted Stock Unit *10.37 Agreement, dated September 12, 2011, Award Agreement, was filed as Exhibit 10.6 between PPG Industries Europe Sárl and to the Registrant’s Quarterly Report on Pierre-Marie De Leener terminating the Form 10-Q for the period ended Employment Agreement, between PPG September 30, 2009. Industries Europe Sárl and Pierre-Marie De *10.30 Form of Time-Vested Restricted Stock Unit Leener, was filed as Exhibit 10.2 to the Award Agreement, was filed as Exhibit 10.7 Registrant’s Quarterly Report on Form 10-Q for to the Registrant’s Quarterly Report on Form the period ended September 30, 2011. 10-Q for the period ended June 30, 2011. *10.38 Letter Agreement with David B. Navikas, was *10.31 Form of letter to certain executives regarding filed as Exhibit 10.2 to the Registrant’s 2008 deferred compensation plan elections, Quarterly Report on Form 10-Q for the was filed as Exhibit 10.20 to the Registrant’s period ended June 30, 2011. Annual Report on Form 10-K for the period †12 Computation of Ratio of Earnings to Fixed ended December 31, 2007. Charges for the Five Years Ended 10.32 Three-Year Credit Agreement, dated December 31, 2011. August 2, 2010, among PPG Industries, Inc.; †13.1 Market Information, Dividends and Holders the several banks and financial institutions of Common Stock. party thereto; JPMorgan Chase Bank, N.A., †13.2 Selected Financial Data for the Five Years as administrative agent; J.P. Morgan Ended December 31, 2011. Securities, Inc., The Bank of Tokyo- †21 Subsidiaries of the Registrant. Mitsubishi UFJ, Ltd. and BNP Paribas †23 Consent of Independent Registered Public Securities Corp., as co-lead arrangers and Accounting Firm. co-bookrunners; and The Bank of Tokyo- †24 Powers of Attorney. Mitsubishi UFJ, Ltd. and BNP Paribas, as †31.1 Certification of Principal Executive Officer co-syndication agents was filed Exhibit 10 to Pursuant to Rule 13a-14(a) or 15d-14(a) of the Registrant’s Current Report on Form 8-K the Exchange Act, as Adopted Pursuant to filed on August 6, 2010. Section 302 of the Sarbanes-Oxley Act of *10.33 Letter agreement with Robert J. Dellinger, 2002. was filed as Exhibit 10.1 to the Registrant’s †31.2 Certification of Principal Financial Officer Quarterly Report on Form 10-Q for the Pursuant to Rule 13a-14(a) or 15d-14(a) of period ended September 30, 2009. the Exchange Act, as Adopted Pursuant to *10.34 Separation Agreement, dated June 8, 2011, Section 302 of the Sarbanes-Oxley Act of between PPG Industries, Inc. and Robert J. 2002. Dellinger, was filed as Exhibit 10.1 to the †32.1 Certification of Chief Executive Officer Registrant’s Quarterly Report on Form 10-Q Pursuant to 18 U.S.C. Section 1350, as for the period ended June 30, 2011. Adopted Pursuant to Section 906 of the *10.35 Employment Agreement between PPG Sarbanes-Oxley Act of 2002. Industries Europe Sàrl, Rolle and Pierre- †32.2 Certification of Chief Financial Officer Marie DeLeener, was filed as Exhibit 10.2 to Pursuant to 18 U.S.C. Section 1350, as the Registrant’s Quarterly Report on Adopted Pursuant to Section 906 of the Form 10-Q for the period ended Sarbanes-Oxley Act of 2002. September 30, 2009. *10.36 Employment Agreement, dated September 12, 2011, between PPG Industries, Inc. and Pierre-Marie De Leener, was filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2011.78 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 81. **101.INS XBRL Instance Document ** Attached as Exhibit 101 to this report are the following**101.SCH XBRL Taxonomy Extension Schema documents formatted in XBRL (Extensible Business Document Reporting Language) for the year ended December 31,**101.CAL XBRL Taxonomy Extension Calculation 2011: (i) the Consolidated Statement of Income, Linkbase Document (ii) the Consolidated Balance Sheet, (iii) the**101.DEF XBRL Taxonomy Extension Definition Consolidated Statement of Shareholders’ Equity, Linkbase Document (iv) the Consolidated Statement of Comprehensive**101.LAB XBRL Taxonomy Extension Label Linkbase Income (Loss), (v) the Consolidated Statement of Cash Document Flows, (vi) Notes to Consolidated Financial Statements**101.PRE XBRL Taxonomy Extension Presentation and (vii) Financial Schedule of Valuation and Linkbase Document Qualifying Accounts. Users of this data are advised † Filed herewith. pursuant to Rule 406T of Regulation S-T that this * Management contracts, compensatory plans or interactive data file is deemed not filed or part of a arrangements required to be filed as an exhibit hereto registration statement or prospectus for purposes of pursuant to Item 601 of Regulation S-K. sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections. 2011 PPG ANNUAL REPORT AND FORM 10-K 79
  • 82. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on February 16, 2012. PPG INDUSTRIES, INC. (Registrant) By D. B. Navikas, Senior Vice President, Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on February 16, 2012. Signature. Capacity Director, Chairman of the Board and Chief Executive Officer C. E. Bunch Senior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) D. B. Navikas S. F. Angel Director ⎫ ⎪ J. G. Berges Director ⎪ ⎪ H. Grant Director ⎪ ⎪ V. F. Haynes Director ⎪ ⎪ M. J. Hooper Director ⎪ By ⎪ D. B. Navikas, Attorney-in-Fact R. Mehrabian Director ⎬ ⎪ M. H. Richenhagen Director ⎪ ⎪ R. Ripp Director ⎪ ⎪ T. J. Usher Director ⎪ ⎪ D. R. Whitwam Director ⎪ ⎭80 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 83. CertificationsPRINCIPAL EXECUTIVE OFFICER CERTIFICATIONI, Charles E. Bunch, certify that:1. I have reviewed this annual report on Form 10-K of PPG Industries, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.Charles E. BunchChairman of the Board and Chief Executive OfficerFebruary 16, 2012 2011 PPG ANNUAL REPORT AND FORM 10-K 81
  • 84. Certifications PRINCIPAL FINANCIAL OFFICER CERTIFICATION I, David B. Navikas, certify that: 1. I have reviewed this annual report on Form 10-K of PPG Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. David B. Navikas Senior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) February 16, 201282 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 85. CertificationsCERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OFTHE SARBANES-OXLEY ACT OF 2002In connection with the annual report on Form 10-K of PPG Industries, Inc. for the period ended December 31, 2011 asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles E. Bunch, Chairmanand Chief Executive Officer of PPG Industries, Inc., certify to the best of my knowledge, pursuant to 18 U.S.C. §1350, asadopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPG Industries, Inc.Charles E. BunchChairman of the Board and Chief Executive OfficerFebruary 16, 2012CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OFTHE SARBANES-OXLEY ACT OF 2002In connection with the annual report on Form 10-K of PPG Industries, Inc. for the period ended December 31, 2011 asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), I, David B. Navikas, Senior VicePresident, Finance and Chief Financial Officer of PPG Industries, Inc., certify to the best of my knowledge, pursuant to18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPG Industries, Inc.David B. NavikasSenior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer)February 16, 2012 2011 PPG ANNUAL REPORT AND FORM 10-K 83
  • 86. Officer Changes The following are officer changes since March 2011: September 2011 March 2011 J. Rich Alexander, Executive Vice President, assumed responsibility for all global Architectural Coatings Denise R. Cade, Assistant General Counsel and Secretary, businesses and the Asia Pacific region. Alexander retained resigned responsibility for Glass segment and the marketing April 2011 function. Anne M. Foulkes, Assistant General Counsel was Pierre-Marie De Leener, Executive Vice President, appointed Assistant General Counsel and Secretary assumed responsibility for the Aerospace, Protective & Marine Coatings, and Automotive Refinish business units Donna Lee Walker, Vice President, Tax Administration, and Latin America region. De Leener retained corporate retired IT responsibility. May 2011 Michael Horton was appointed President, PPG Asia/ Johann F. Kolling was appointed Vice President, Tax Pacific, and Vice President, Automotive Refinish and Administration from Director, U.S. Taxes Architectural Coatings, Asia/Pacific from Vice President, Asia/Pacific Coatings and General Manager, Refinish, Gary R. Danowski was appointed Vice President, Architectural, and Protective and Marine Coatings, Asia/ Automotive Refinish, EMEA, from Vice President, Flat Pacific Glass Viktoras R. Sekmakas was appointed Senior Vice Richard A. Beuke was appointed Vice President, Flat President, Industrial Coatings and President, PPG Europe Glass from Vice President, Silicas from Senior Vice President, Industrial Coatings and June 2011 President, Asia/Pacific Coatings Robert J. Dellinger, Senior Vice President, Finance and Jorge A. Steyerthal, Vice President, Coatings and Chief Financial Officer, resigned Managing Director Latin America, retired David B. Navikas was appointed Senior Vice President, Finance and Chief Financial Officer from Vice President and Controller July 2011 David B. Navikas joined the Executive Committee replacing Robert J. Dellinger84 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 87. TrademarksThe following are trademarks and/or registeredtrademarks of PPG and its related entities and used in thisreport:Amercoat, Balakryl, Boonstoppel, Brander, CR-39, Dekoral,Freitag, Guittet, Hera, Histor, Ivy, Johnstone’s, Leyland,Master’s Mark, Olympic, Penitures Gauthier, PPG logo, PPGPittsburgh Paints, PPG Porter Paints, Primalex, ProminentPaints, Rambo, Ripolin, Seigneurie, Sigma Coatings,Taubmans, Teslin, Trinat, Trivex.Lucite is a registered trademark of E.I. DU PONT DENEMOURS AND COMPANY, used under license.Renner is a registered trademark of Renner Herrmann S.A.and Renner Sayerlack S.A., used under license.FSC and tree logo is a registered certification mark ofForest Stewardship Council, A.C., used under license.Transitions is a registered trademark of TransitionsOptical, Inc.Dyrup and Bondex are registered trademarks of Dyrup A/S.Other company, product and service names used in thisreport may be trademarks or service marks of otherparties.Copyright© 2012 PPG Industries, Inc., all rights reserved. 2011 PPG ANNUAL REPORT AND FORM 10-K 85
  • 88. Five-Year Digest All amounts are in millions of dollars except per share data and number of employees. 2011 2010 2009 2008 2007 Consolidated Statement of Income Net sales 14,885 13,423 12,239 15,849 12,220 Income before income taxes 1,597 1,295 617 908 1,315 Income tax expense 385 415 191 284 383 Income from continuing operations, net of tax 1,095 769 336 538 856 (Loss) income from discontinued operations, net of tax — — — — (22) Net income (attributable to PPG) 1,095 769 336 538 834 Return on average capital (%)(1) 16.6 12.9 6.6 8.6 16.4 Return on average equity (%) 29.8 21.0 10.1 13.0 22.4 Earnings per common share: Income from continuing operations 6.96 4.67 2.04 3.27 5.20 (Loss) income from discontinued operations — — — — (0.13) Net income (attributable to PPG) 6.96 4.67 2.04 3.27 5.07 Weighted average common shares outstanding 157.3 164.5 164.8 164.6 164.5 Earnings per common share – assuming dilution : Income from continuing operations 6.87 4.63 2.03 3.25 5.16 (Loss) income from discontinued operations — — — — (0.13) Net income (attributable to PPG) 6.87 4.63 2.03 3.25 5.03 Adjusted weighted average common shares outstanding 159.3 165.9 165.5 165.4 165.9 Dividends 355 360 353 343 335 Per share 2.26 2.18 2.13 2.09 2.04 Consolidated Balance Sheet Current assets 6,694 7,058 5,981 6,348 6,941 Current liabilities 3,702 3,625 3,577 4,210 4,632 Working capital 2,992 3,433 2,404 2,138 2,309 Property (net) 2,721 2,686 2,754 2,798 2,578 Total assets 14,382 14,975 14,240 14,698 12,629 Long-term debt 3,574 4,043 3,074 3,009 1,201 Total PPG shareholders’ equity 3,249 3,638 3,753 3,333 4,151 Per share 20.40 21.93 22.65 20.30 25.34 Other Data Capital spending(2) 446 341 265 2,056 597 Depreciation expense 346 346 354 428 345 Amortization expense 121 124 126 135 58 Interest expense 210 189 193 254 93 Quoted market price High 97.81 84.59 62.31 71.00 82.42 Low 66.43 56.96 28.16 35.94 64.01 Year end 83.49 84.07 58.54 42.43 70.23 Price/earnings ratio(3) High 14 18 31 22 16 Low 10 12 14 11 13 Average number of employees 38,400 38,300 39,900 44,900 34,900 (1) Return on average capital is calculated using pre-interest, aftertax earnings and average debt and equity during the year. (2) Includes the cost of businesses acquired. (3) Price/earnings ratios were calculated based on high and low market prices during the year and the respective year’s earnings per common share.86 2011 PPG ANNUAL REPORT AND FORM 10-K
  • 89. PPG Shareholder Information Quarterly Stock Market Price 2011 2010 Quarter Ended High Low Close High Low Close March 31 $ 96.56 $ 78.75 $ 95.21 $ 66.63 $ 56.96 $ 65.40 June 30 97.81 82.76 90.79 72.24 59.01 60.41 September 30 93.85 68.27 70.66 73.99 59.69 72.80 December 31 90.00 66.43 83.49 84.59 72.10 84.07 The number of holders of record of PPG common stock as of Jan. 31, 2012, was 18,151 per the records of the company’s transfer agent. Dividends 2011 2010 Month of Payment Amount (Millions) Per Share Amount (Millions) Per Share March $ 89 $ .55 $ 90 $ .54 June 89 .57 90 .54 September 90 .57 90 .55 December 87 .57 90 .55 Total $ 355 $ 2.26 $ 360 $ 2.18 PPG has paid uninterrupted annual dividends since 1899. The latest quarterly dividend of 57 cents per share was approved by the board of directors Jan. 19, 2012, payable March 12, 2012, to shareholders of record Feb. 17, 2012. The company has increased its annual dividend payment for the past 40 consecutive years. PPG’s last dividend increase was announced in April 2011. Shareholder Return Performance Graph The information presented in these graphs assumes that the investment in the company’s common stock and each index was $100 on Dec. 31, 2006, and Dec. 31, 2001, and that all dividends These line graphs compare the yearly percentage changes in the cumulative total shareholder were reinvested. value return of the company’s common stock with the cumulative total return of the Standard & Poor’s Composite 500 Stock Index (“S&P 500 Index”) and a defined Peer Group, for the The Peer Group includes coatings companies AkzoNobel NV, The Dow Chemical Co., five-year and ten-year periods beginning Dec. 31, 2006, and Dec. 31, 2001, respectively, and Eastman Chemical Co., E.I. DuPont de Nemours & Co., FMC Corp., RPM International ending Dec. 31, 2011. Inc., Masco Corp., The Sherwin-Williams Co., and The Valspar Corp. Comparison of Five-Year Cumulative Total Return Comparison of Ten-Year Cumulative Total Return200 250 PPG PPG Peer Group Peer Group 200 S&P 500 Index S&P 500 Index150 150100 100 50 50 2005 12/06 2006 12/07 2007 12/082008 12/09 12/10 2009 12/11 2010 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 PPG Industries, Inc. 100 113 71 102 151 154 PPG Industries, Inc. 100 100 132 145 127 145 163 102 148 219 223 Peer Group 100 101 57 88 115 107 Peer Group 100 95 119 142 132 148 150 84 130 170 158 S&P 500 Index 100 105 66 84 97 99 S&P 500 Index 100 78 100 111 117 135 142 90 114 131 133 2011 PPG INDUSTRIES ANNUAL REPORT World Headquarters Annual Meeting of Shareholders Specific questions regarding the transfer or replacement of stock certificates, dividend check One PPG Place Thursday, April 19, 2012, 11 a.m. replacement, dividend tax information or the direct purchase plan with dividend reinvestment option Pittsburgh, PA 15272 USA David L. Lawrence Convention Center should be made to Computershare directly at (800) 648-8160, or by logging on to Investor Service (412) 434-3131 Spirit of Pittsburgh Ballroom B Direct at www.bnymellon.com/shareowner/equityaccess. www.ppg.com 1000 Fort Duquesne Blvd. Stock Exchange Listings Pittsburgh, PA 15222 PPG common stock is listed on the New York Stock Exchange (symbol: PPG). Transfer Agent & Registrar Computershare Investor Relations Publications Available to Shareholders 480 Washington Blvd. PPG Industries, Inc. Copies of the following publications will be furnished without charge upon written request to Jersey City, NJ 07310-1900 Investor Relations Corporate Communications, PPG Industries, Inc., One PPG Place, Pittsburgh, PA 15272. Most of these PPG-dedicated phone: (800) 648-8160 One PPG Place 40E are also available on the Internet at www.ppg.com, Investor Center, Publications. The publications www.bnymellon.com/shareowner/equityaccess Pittsburgh, PA 15272 include: Annual Report and Form 10-K, including the financial schedule and other exhibits; PPG (412) 434-3318 Industries Blueprint; PPG’s Global Code of Ethics; PPG’s Code of Ethics for Senior Financial Officers; PPG’s Corporate Sustainability Report; and Facts About PPG. 87
  • 90. PPG IndustriesOne PPG PlacePittsburgh, PA 15272 USA Cert no. SCS-COC-000648(412) 434-3131 This annual report is printed on paper that iswww.ppg.com FSC-certified, contains 30% post-consumer recovered fiber and is manufactured withAR-CORP-0212-ENG-20K electricity in the form of renewable energy.